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Observations from Bloomberg’s Health Care Analyst

Innovation in SurgeryJason McGorman – Bloomberg Intelligence

December 6, 2018

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Ask A Question• Feel free to ask a question at any time

Contact Information• Jason McGorman, Senior Healthcare Analyst• [email protected]• +1.609.279.3257

Access BI Research• BI HOSPN <GO> - Hospitals• BI HMOIN <GO> - Managed Care

BI MDEVG <GO> - Medical Devices

Thank You

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• Bloomberg Intelligence (BI) provides in-depth research and data on industries and companies as well as the government, ESG, credit, economic and litigation factors that can impact business decisions.

• BI covers 135+ industries and 1,900+ companies, and is backed by 300+ third-party data providers.

• BI is made up of 280+ research professionals. The senior analyst team averages 17+ years of buy- and sell-side research experience.

• BI is exclusively provided to clients who subscribe to the Bloomberg Terminal and can be accessed via BI <GO>.

What is Bloomberg Intelligence?

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The data included in these materials are for illustrative purposes only. The BLOOMBERG TERMINAL service and Bloomberg data products (the “Services”) are owned and distributed by Bloomberg Finance L.P. (“BFLP”) except that Bloomberg L.P. and its subsidiaries (“BLP”) distribute these products in Argentina, Australia and certain jurisdictions in the Pacific islands, Bermuda, China, India, Japan, Korea and New Zealand. BLP provides BFLP with global marketing and operational support. Certain features, functions, products and services are available only to sophisticated investors and only where permitted. BFLP, BLP and their affiliates do not guarantee the accuracy of prices or other information in the Services. Nothing in the Services shall constitute or be construed as an offering of financial instruments by BFLP, BLP or their affiliates, or as investment advice or recommendations by BFLP, BLP or their affiliates of an investment strategy or whether or not to “buy”, “sell” or “hold” an investment. Information available via the Services should not be considered as information sufficient upon which to base an investment decision. The following are trademarks and service marks of BFLP, a Delaware limited partnership, or its subsidiaries: BLOOMBERG, BLOOMBERG ANYWHERE, BLOOMBERG MARKETS, BLOOMBERG NEWS, BLOOMBERG PROFESSIONAL, BLOOMBERG TERMINAL and BLOOMBERG.COM. Absence of any trademark or service mark from this list does not waive Bloomberg's intellectual property rights in that that name, mark or logo. All rights reserved. © 2018 Bloomberg.

Bloomberg Intelligence is a service provided by Bloomberg Finance L.P. and its affiliates. Bloomberg Intelligence shall not constitute, nor be construed as, investment advice or investment recommendations (i.e., recommendations as to whether or not to “buy”, “sell”, “hold”, or to enter or not to enter into any other transaction involving any specific interest) or a recommendation as to an investment or other strategy. No aspect of the Bloomberg Intelligence function is based on the consideration of a customer's individual circumstances. Bloomberg Intelligence should not be considered as information sufficient upon which to base an investment decision. You should determine on your own whether you agree with Bloomberg Intelligence.

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Disclaimer

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• Aortic Valves• Mitral Valves• Stroke Therapies• Robotics• Analytics

Innovation A Sign of Life For Inpatient Volumes

Aortic Valves

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• Two transcatheter valves shown to be superior in some patients

• 2-Year mortality for Medtronic’s CoreValve 11.4% vs. 11.6% for surgery (intermediate risk)

• Stroke risk lower vs. surgery in past few U.S. trials

• Main challenge: durability of valves long-term

Aortic Valves – Low Stroke, Mortality

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• There are 210,000 U.S. patients with severe, symptomatic aortic stenosis

• Just 12% of those patients are actually recommended for treatment

• Many patients are waiting on the sidelines

• Main challenge: better educate on clinical trial results and guidelines

Aortic Valves – Patients Slipping Through the Cracks

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• There is plenty of room for growth as many patients are on the sidelines

• Just 21% of diagnosed patients were treated in 2017

• Italian study of 2,300 patients in 13 centers showed just a 3.2% incidence of valve failure through 7 years

Aortic Valves – Plenty of Growth to Come

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• Low-risk patient data coming mid-March 2019

• Data from NOTION trial (Europe) show strong five-year durability, non-inferiority vs. surgery

• Low-risk patients estimated at 30% of severe AS population – or 91,000

• FDA approval expected 2H19

Aortic Valves – Expansion to Younger Patients

Mitral Valves

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• Mitral valve doesn’t fully close

• Primary (degenerative) – involves stretching or rupture

• Secondary (functional) – due to heart failure or coronary disease

• One-year mortality is 20-30%, but 60% of patients are asymptomatic

Mitral Valves

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• There are 2.9 million U.S. diagnosed patients, with about 2 million functional

• There are 630,000 U.S. patients with severe functional MR

• Just 2% of all mitral regurgitation patients get surgery each year

• One-year mortality is 20-30%, but 60% of patients are asymptomatic

Mitral Valves – Significant Unmet Need

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• Abbott’s MitraClip had similar mortality vs. surgery

• Adverse events in 15% of patients vs. 48% for surgery at one month

• But 22% of Clip patients needed re-operations at 2 years vs. 4% for surgery

• FDA approved late 2013 for high surgical risk patients with degenerative MR

Mitral Valves – Degenerative Outcomes

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• Abbott’s MitraClip cut mortality 17% (absolute) for functional MR patients

• MitraClip is the first device to show superiority vs. drug therapy

• Abbott FDA approval expected 2H19

• Device makers have spent $2.3 billion on acquisitions and see this as one of the most exciting segments

Mitral Valves – Breakthrough in Functional

Stroke Therapies

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• There are 800,000 strokes in the U.S. each year

• 90% are ischemic, 10% are hemorrhagic

• Penetration remains low at 13%

• Guidelines have changed – can now treat some up to 24 hours

Stroke – A Significant Need

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• Device makers focused on helping increase awareness

• Hospitals with strong cardiac & neurology centers likely see volume boost

• This is a long-term market opportunity

• Barrier is education and protocols for ambulance drivers

Stroke – Driving Awareness

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• Flow Diverters

• Microcatheters

• Stent Retrievers

• Target Coils

• Suppliers: Medtronic, Stryker, and Penumbra

Stroke – Products

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• There are 5 million U.S. patients with atrial fibrillation

• But 75% of patients are at a high-risk of stroke due to bleeding

• One-third of those patients are intolerant to oral anticoagulants

• WATCHMAN left atrial appendage closure device is a new option

Stroke – Atrial Fibrillation

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• About 90% of strokes in AF patients are caused by thrombus in the left atrial appendage (LAA)

• WATCHMAN is a plug that closes off the LAA

• WATCHMAN significantly reduces hemorrhagic stroke and cardiovascular death vs. Warfarin

• Over 400 hospitals are implanting in the U.S.

Stroke – Atrial Fibrillation

Robotics

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Stryker’s MAKO:• Personalized operating plan • Robotic arm gives tactile resistance

Smith & Nephew’s NAVIO:• No need for CT scan• Still features cutting guides

Robotics – Total Knee Replacement

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• Optum commercial claims show a 40% reduction in 30-day readmissions

• Medicare claims show Mako cut 90-day cost of care by $2,400 and readmissions by 33%

• Additional prospective study showed significantly lower pain and shorter discharge times

Robotics – Stryker’s MAKO

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• Globus Medical launched a robot for spine late 2017

• Medtronic bought Israeli robotic company Mazor for $1.6 billion, launching in 1Q

• NuVasive partnering with Siemens Healthineers for 3-D imaging on an integrated platform

• Zimmer Biomet launching Rosa in 2H

Robotics – Expanding to Spine

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• Intuitive expanding to lung biopsies (ION) and hernia

• Medtronic and Johnson & Johnson launching robots for general surgery in 2020

• Robotics are an opportunity for hospitals:− To attract top surgeons− To draw new patients, boost volume

Robotics – Other Indications, Competitors

Analytics

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• Optum analytics can reduce readmissions up to 10%

• Amazon using machine learning, cloud to process electronic medical records (HIPAA compliant)

• Possibility of better efficiency, lower administrative costs & penalties

• Google AI has improved cancer detection, a possible long-term boost

Analytics – Tech Firms Move In

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Senior Healthcare AnalystBloomberg [email protected]+1.609.279.3257

Jason McGorman, CFA

Thank You For Your Attention


David Wildebrandt is a Director of Berkeley Research Group’s Healthcare Performance Improvement Practice. He has over 15 years of healthcare operations experienced focused on improving contribution margin, efficiency improvement through clinical process redesign, and enhancing physician integration. Prior to joining BRG, Mr. Wildebrandt served as Senior Vice President for Baptist Health Care in Northwest Florida and President for Baptist Hospital Inc. Baptist Health Care is a nationally acclaimed organization for its employee culture which has resulted in being recognized a Fortune Magazine Top 100 Companies for six consecutive years; the prestigious Malcolm Baldridge National Quality Award; Solucient Top 100 Hospital; and has lead the country in patient satisfaction for over a decade. Mr. Wildebrandt also served as national keynote speaker for the consulting division Baptist Leadership Group and has lectured extensively at health care industries and trade organizations. Mr. Wildebrandt has first-hand knowledge of how to create and leverage a culture of engaged employees and physicians to drive performance improvement across all key metrics. His clinical background combined with significant executive management experience provides Mr. Wildebrandt with a diverse and comprehensive skill set to provide effective solutions across the heath care continuum. Mr. Wildebrandt brings extensive, relevant experience to help guide health care organizations through today’s financial landscape while improving clinical outcomes and sustaining an engaged culture. Mr. Wildebrandt has received honors from the University of St. Francis as National Alumni of the Year 2009, from the College of Allied Health Hall of Fame, University of South Alabama as National Alumni of the Year 2008, and named one of Top 50 Leaders Under 50 in Northwest Florida.

A Now a Word from our Exclusive Sponsor: BRG Healthcare

David Wildebrandt


Accounting Update


ACCOUNTING UPDATEHFMA FL Annual Healthcare CPE Forum

December 6, 2018

©2018 RSM US LLP. All Rights Reserved.

Today’s presenter

RSM US LLP201 N. Harrison StreetDavenport, Iowa [email protected]+1 563 888 4038

Michelle HoraneyPartner, National Professional Standards Group/National Leader for Education

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Learning objectives

• After completing this program, you should− Have a better understanding of recent accounting and

reporting developments and issues impacting healthcare organizations reporting under GASB standards

• To address applicable GASB standards in the preparation of the financial statements of a healthcare reporting entity

• To prepare for implementation of applicable standards with future effective dates

− Have received an update of the status of two key FASB standards; Topic 606 Revenue Recognition and ASU 2016-14 Presentation of Financial Statements of Not-for-Profit Entities

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Agenda

AgendaGASB Accounting Update 75 minutes

FASB Topic 606 and ASU 2016-14 Update 15 minutes

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Audience Question

• Which one of the following is your organization?

A.) GASB reporting entity

B.) Non Profit / FASB reporting entity

C.) Investor owned/for-profit FASB reporting entity

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GASB ACCOUNTING UPDATE

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GASB 75 – Accounting and financial reporting for postemployment benefits other than pensions

• Issued – June 2015• Effective – periods beginning after June 15, 2017• Measurement of OPEB liability

− Total OPEB liability less plan assets as of the measurement date

• Actuarially calculated• Alternative method – less than 100 plan members (both

active and inactive)• Single employer, agent employer, cost-sharing employer

(proportionate share)• Special funding situations• Assets accumulated for purposes of providing OPEB

through defined benefit OPEB plans that are not administered through trusts

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GASB 75 – Accounting and financial reporting for postemployment benefits other than pensions (continued)

• Entry age actuarial cost method• Projected plan benefits attributed to past periods of service

− Claims costs or age-adjusted premiums based approximating claims costs

− Plan benefits provided through plan document and past practice

− Legal or contractual agreements and caps; taxes and assessments

− Projected salary changes and service credits including COLA• Discounted to actuarial present value

− Long term rate of return− Tax-exempt high quality municipal rate when conditions for

using the long term rate aren’t met• OPEB expense - immediate • OPEB expense - deferred

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GASB 75 – Accounting and financial reporting for postemployment benefits other than pensions (continued)

• Note Disclosures− OPEB plan description− Assumptions and other inputs− OPEB plan fiduciary net position− Changes in the net OPEB liability− Measurement date− Special funding situation− Changes in assumptions− Deferred inflows/outflows balances− Discount rate sensitivity− Health care cost trend sensitivity

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GASB 80 – Blending requirements for certain component units

• Issued – January 2016• Effective – periods beginning after June 15, 2016• A component unit should be included in the

reporting entity financial statements using the blending method if the component unit is organized as a not-for-profit corporation in which the primary government is the sole corporate member, as identified in the component unit’s articles of incorporation or bylaws, and the component unit is included in the financial reporting entity pursuant to the provisions in paragraphs 21−37 of Statement 14, as amended

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GASB 83 – Certain asset retirement obligations

• Issued – November 2016• Effective – periods beginning after June 15, 2018• Asset retirement obligation (ARO) – a legally

enforceable liability associated with the permanent retirement of a tangible capital asset− Sale, abandonment, recycling, or disposal− Does not encompass temporary idling

• AROs result from normal operations of tangible capital assets, whether acquired or constructed, and include legally enforceable liabilities associated with the activities

• Applies to a lessor in connection with the retirement of its leased property if those liabilities meet the definition of an ARO

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GASB 83 – Certain asset retirement obligations (continued)• GASB 83 does not apply to the following:

− Obligations that arise solely from a plan to sell or otherwise dispose of a tangible capital asset

− Obligations associated with the preparation of a tangible capital asset for an alternative use

− Obligations for pollution remediation such as asbestos removal, that result from the other-than-normal operation of a tangible capital asset

− Obligations associated with maintenance, rather than retirement

− Cost of a replacement part that is a component of a tangible capital asset

− Landfill closure and postclosure care− Conditional obligations to perform asset retirement

activities

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GASB 83 – Certain asset retirement obligations (continued)

• Recognition of an ARO: a government should recognize an ARO when the liability is incurred and reasonably estimable− Liability is incurred by the occurrence of both an

external obligating event and an internal obligating event resulting from normal operations

• Obligating event is an event whose occurrence determines the timing for recognition of an ARO

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• External obligating event: − Approval of federal, state or local laws or

regulations− Creation of a legally binding contract− Issuance of a court judgment

• Internal obligating event: − Occurrence of contamination that is a result of the

normal operation of a tangible capital asset and not in the scope of GASB 49

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• Internal obligating event (cont’d): − Non-contamination related AROs pattern of

incurrence is 1) based on the use of the tangible capital asset, the event is placing that capital asset into operation and consuming a portion of the usable capacity by the normal operation; 2) based on the use of the tangible capital assets, the event is placing that capital asset into operation; and 3) the tangible capital asset is permanently abandoned before it is placed into operation, the event is the abandonment itself

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• Initial measurement of an ARO:− Deferred outflow of resources (debit)− Liability (credit)− The best estimate of the current value of outlays

expected to be incurred • Current value is the amount that would be paid if all

equipment, facilities, and services included in the estimate were acquired at the end of the current reporting period

• Recognize in a systematic and rational manner over a period of time

• Subsequent measurement of the ARO:− Liability is re-measured annually for effects of inflation or

deflation. An adjustment through re-measurement would only result if the evaluation indicates a significant change in estimated outlays.

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• Notes to the financial statements:− General description of the AROs and associated

tangible capital assets as well as the source of the obligation

− Methods and assumptions used to measure the liabilities

− Estimated remaining useful life of the associated tangible capital assets

− Legally require funding and assurance provisions− Amount of assets restricted for payment of the liabilities− ARO or portions that have been incurred by a

government but is not yet recognized because it is not reasonably estimable

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Participation Question #3

Which of the following are excluded from the scope of GASB 83?a) Landfill costs that are not recognized under

GASB Statement No. 18b) Asbestos removal resulting from other than

normal operation of a tangible capital assetc) Removal and disposal of wind turbinesd) All of the abovee) A and b

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GASB 84 - Fiduciary activities

• Issued – January 2017• Effective – periods beginning after December 15, 2018• Criteria focused on:

− Whether a government is controlling the assets of the fiduciary activity

− The beneficiaries with who a fiduciary relationship exists

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Fiduciary Activities

FiduciaryComponent Units

Pension and OPEB Activities Other Activities

Pension and OPEB Activities not

Component Units

Other Fiduciary Activities

GASB 84 - Fiduciary activities (continued)

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Component Units



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• Fiduciary component units − GASB Statement 14 criteria, as amended

• Pension and OPEB plans that are administered through trusts under GASB 67 and 74 are legally separate entities

• Pension and OPEB plans may not have a traditional board

• Government is considered to have a financial burden if it is legally obligated or has otherwise assumed the obligation to make contributions to the pension plan or OPEB plan

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Component Unit not Pension/OPEBFiduciary Activities

Assets are 1) administered through a trust agreement or

equivalent arrangement in which the government itself is not a beneficiary, 2) dedicated to

providing benefits to recipients in accordance with benefit terms, and 3) legally protected from the creditors of the government

Assets are for the benefit of individuals and the government does not have administrative involvement with the assets or direct financial involvement with the assets. In addition the assets

are not derived from the government’s provision of goods or services to those individuals

Assets are for the benefit of organizations or other

governments that are not part of the financial reporting entity. In addition the assets are not

derived from the government’s provision of goods or services to those organizations or other

governments


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• Administrative involvement with the assets:⎯ Monitors compliance with the requirements of the

activity ⎯ Determines eligible expenditures that are

established by the government or by a resource provider

⎯ Has the ability to exercise discretion over how assets are allocated. • A government has direct financial involvement with the

assets if, for example, it provides matching resources for the activities



• Government’s own-source revenues are revenues that are generated by a government itself. − Exchange and exchange-like revenues and investment

earnings − Derived tax revenues and imposed nonexchange

revenues• Sales and income taxes• Property taxes







Component Units



63



• Pension and OPEB arrangements that are not component units are fiduciary activities if the government controls the assets of the arrangement: − A pension plan that is administered through a trust− An OPEB plan that is administered through a trust− A circumstance in which assets from entities that are not

part of the reporting entity are accumulated for pensions as described in paragraph 116 of Statement 73

− A circumstance in which assets from entities that are notpart of the reporting entity are accumulated for OPEB as described in paragraph 59 of Statement 74

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• A government controls the assets of an activity if the government holds the assets or has the ability to direct the use, exchange, or employment of assets in a manner that provides benefits to the specified or intended recipients− Restrictions from legal or other external restraints

that stipulate the assets can be used only for a specific purpose do not negate a government’s control of the assets

65






Component Units



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Assets associated with the activity are controlled by the

government

Assets associated with the activity are not derived either 1) solely from the government’s own‐source

revenues or 2) from government‐mandated

nonexchange transactions or voluntary nonexchange

transactions

Assets associated with the activity have one or more of the following characteristics•Assets are administered through a trust, providing benefits to recipients and legally protected

•Assets are for the benefit of individuals; government does not have administrative involvement or direct financial involvement with the assets.

•Assets are for the benefit of organizations or other governments not part of the financial reporting entity.




• Governments should report fiduciary activities in the fiduciary fund financial statements. The following are the fiduciary funds that may be used:− Pension and OPEB trust funds− Investment trust funds− Private-purpose trust funds− Custodial funds

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• Pension and OPEB trust funds:− Pension plans and OPEB plans that are administered

through trusts that meet the criteria in paragraph 3 of Statement 67 or paragraph 3 of Statement 74 respectively

− Other employee benefit plans for which 1) resources are held in trust in which the government itself is not a beneficiary, dedicated to providing benefits to recipients in accordance with the benefit terms and legally protected from the creditors of the government and 2) contributions to the trust and earnings on those contributions are irrevocable

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• Investment trust funds:− Report fiduciary activities from the external portion of

investment pools and individual investment accounts that are held in a trust

• An investment service provided by a governmental entity for other, legally separate entities that are not a part of the same reporting entity

• Individual investment accounts for specific investments acquired for individual entities and the income from the changes in the value of those investments affect only the entity for which they were acquired

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• Private-purpose trust funds:− Report fiduciary activities that are not required to be

reported in pension and OPEB trust funds, or investment funds

• Custodial funds:− Report fiduciary activities that are not required to be

reported in the other trust fund types; assets are not held in trust

• Business-type activities may report assets with a corresponding liability that otherwise should be reported in a custodial fund if those assets, upon receipt, are normally expected to be held for three months or less

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What are the key factors in determining whether or not the government controls the assets of a fiduciary activity?a. The government holds the assetsb. The government can use, exchange and has

administrative involvement c. The government can use, employ and has

administrative involvementd. None of the above

72


GASB 85 – Omnibus 2017

• Issued – March 2017• Effective – periods beginning after June 15, 2017• Retroactively applied to earliest year presented• Address practice issues identified during

implementation and application of certain GASB Statements including blending component units, goodwill, fair value measurement and application, and post employment benefits

73


GASB 85 – Omnibus 2017 (continued)

• Blending Component Units:− A primary government that is a business-type activity

and uses a single column for financial statement presentation of its business-type activities can blend a component unit only if the component unit meets a criterion for blending in paragraph 53 of Statement 14

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GASB 85 – Omnibus 2017 (continued)

• Goodwill• Fair value measurement and application• Presentation of payroll-related measures in RSI by

OPEB single-employer and cost-sharing multiple employer defined benefit OPEB plans

• Presentation of payroll-related measures in RSI by employers that provide OPEB (plans administered through trusts)

• Classification of employer-paid member contributions for OPEB

75


GASB 86 – Certain Debt Extinguishment Issues

• Issued – May 2017• Effective – periods beginning after June 15, 2017• Debt is considered defeased in substance for

accounting and financial reporting purposes if the government irrevocably places cash and other monetary assets acquired with only existing resources with an escrow agent in a trust to be used solely for satisfying scheduled payments of both principal and interest of the defeased debt and the possibility that the government will be required to make future payments on the debt is remote

76


GASB 86 – Certain Debt Extinguishment Issues (continued)

• The trust is restricted to owning only monetary assets that are essentially risk-free as to the amount, timing, and collection of interest and principal

• Risk-free monetary assets are limited to:− Direct obligations of the U.S. government− Obligations guaranteed by the U.S. government− Securities backed by U.S. government obligations as

collateral and for which interest and principal payments on the collateral generally flow immediately through to the security holder

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• Recognition using the economic resources measurement focus− When in-substance defeasance criteria are met the

liability is no longer reported− Any difference between the reacquisition price and

the net carrying amount of the debt, together with any deferred inflows or outflows of resources from prior refundings should be recognized as a separately identified gain or loss in the period of the in-substance defeasance

− Prepaid insurance related to extinguished debt

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• Notes to the financial statements: Governments that defease debt using only existing resources should provide a general description of the transaction in the notes to the financial statements in the period of the defeasance. − The amount of the debt, the amount of existing resources

placed with the escrow agent, the reasons for the defeasance, and the cash flows required to service the defeased debt

• In all periods following an in-substance defeasance of debt using only existing resources, governments should disclose the amount of the debt defeased in substance that remains outstanding, if any, at the period-end.

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• Additional disclosures for all in-substance defeasance transactions− Period in which debt is defeased in substance,

governments should disclose the following risk, if applicable: substitution of essentially risk-free monetary assets with monetary assets that are not essentially risk-free is not prohibited

− In all periods following an in-substance defeasance, governments should disclose the total amount of debt defeased in substance that remains outstanding for which the risk of substitution exists, if any. This amount should be disclosed separately from the amount of debt defeased in substance that remains outstanding

80



GASB 86 requires the trust holding the assets in escrow to invest those assets in essentially risk-free investments as to the amount, timing and collection of interest and principal. GASB 86 goes on to define the types of investments that would be considered risk-free. Which of the following would not be considered risk-free and therefore not qualify as an insubstance defeasance? a. Direct obligations of the U.S. governmentb. Obligations guaranteed by the U.S. governmentc. Direct obligations of the U.S. government that

include a call provision d. Securities backed by U.S. government obligations as

collateral

81


GASB 87 – Leases

• Issued – June 2017• Effective - Fiscal periods beginning after

December 15, 2019• Scope

− A lease is defined as a contract that conveys control of the right to use another entity’s nonfinancial asset (the underlying asset) as specified in the contract for a period of time in an exchange or exchange-like transaction

• Examples of nonfinancial assets include buildings, land, vehicles, and equipment

• Any contract that meets this definition should be accounted for under the leases guidance, unless specifically excluded in this Statement

82


GASB 87 – Leases (continued)

• Scope exclusions - this Statement does not apply to:− Leases of intangible assets− Leases of biological assets, timber as example− Leases of inventory− Contracts that meet the definition of a service

concession arrangement in paragraph 4 of GASB No. 60, Accounting and Financial Reporting for Service Concession Arrangements

− Leases in which the underlying asset is financed with outstanding conduit debt, unless both the underlying asset and the conduit debt are reported by the lessor

− Supply contracts, such as power purchase agreements

83



• Lease term is the period during which a lessee has a noncancelable right to use the underlying asset (referred to as the noncancelable period), plus the following periods, if applicable:

− Periods covered by lessee’s option to extend the lease if it is reasonably certain, based on all relevant factors, the lessee will exercise that option

− Periods covered by lessee’s option to terminate the lease if it is reasonably certain, based on all relevant factors, the lessee will NOT exercise that option

− Periods covered by lessor’s option to extend the lease if it is reasonably certain, based on all relevant factors, the lessor will exercise that option

− Periods covered by lessor’s option to terminate the lease if it is reasonably certain, based on all relevant factors, the lessor will NOT exercise that option

84



• Periods for which both the lessee and the lessor have an option to terminate the lease, or for which only the lessor has that option, are cancelable periods and are excluded from the lease term. − Provisions that allow for termination of a lease due to (a)

purchase of the underlying asset, (b) payment of all sums due, or (c) default on payments, are not considered termination options

• A fiscal funding or cancellation clause (a clause that allows governmental lessees to cancel a lease agreement, typically on an annual basis, if the government does not appropriate funds for the lease payments) should be considered in determining the lease term only when it is reasonably certain that the clause will be exercised

85



Leasee:• Lessee Recognition and Measurement for Leases

Other than Short-Term Leases and Contracts that Transfer Ownership− At the commencement of the lease term, a lessee

should recognize a lease liability and an intangible right-to-use lease asset (a capital asset referred to as the lease asset)

86



• Lease liability – lessee should initially measure the lease liability at the present value of payments expected to be made during the lease term less any lease incentives. − Lease Incentives are (a) payments made to, or on behalf of,

the lessee for which the lessee has a right of offset with its obligation to the lessor, or (b) other concessions granted to the lessee

− Reduce lease liability as payments are made and recognize an outflow of resources for interest on the liability

87



• Lease Asset – a lessee initially should measure the lease asset as the sum of the following:− The amount of the initial measurement of the lease liability− Lease payments made to the lessor at or before the

commencement of the lease term, less any lease incentives received from the lessor at or before the commencement of the lease term

− Initial direct costs that are ancillary charges necessary to place the lease asset into service

• Any initial direct costs that would be considered debt issuance costs, should be recognized as an expense in the period in which they are incurred

88



• Lease Asset – should be amortized in a systematic and rational manner over the SHORTER of the lease term or the useful life of the underlying asset (except as noted below). − Exception – If a lease contains a purchase option that the

lessee has determined is reasonably certain of being exercised, the lease asset should be amortized over the useful life of the underlying asset

− If the underlying asset is nondepreciable, such as land, the lease asset should not be amortized

• Amortization of lease asset should be reported as an expense (example, amortization expense) which may be combined with depreciation expense related to other capital assets for financial reporting purposes

89



Lessor:• Lessor Recognition and Measurement for Leases

Other Than Short-Term Leases and Contracts that Transfer Ownership− At the commencement of the lease term, a lessor should

recognize a lease receivable and a deferred inflow of resources, except for short-term leases and transfer of ownership, as well as two additional exceptions:

• If the underlying asset in a lease meets the requirements in Statement 72 to be reported as an investment measured at fair value

• Certain regulated leases

90



• Certain regulated leases – certain leases that are subject to external laws, regulations, or legal rulings that establish all of the following requirements:

− Lease rates cannot exceed a reasonable amount, with reasonableness being subject to determination by an external regulator

− Lease rates should be similar for lessees that are similarly situated− The lessor cannot deny potential lessees the right to enter into leases if

facilities are available, provided that the lessee’s use of the facilities complies with generally applicable use restrictions

91



• Lease asset measurement – lessor should measure the lease receivable at the present value of lease payments expected to be received during the lease term, reduced by any provision for estimated uncollectible amounts. Measurement of the lease receivable should include the following, if required by a lease:

− Fixed payments− Variable payments that depend on an index or rate initially measured

at the beginning of the lease term− Variable payments that are fixed in substance− Residual value guarantee payments that are fixed in substance− Any lease incentives payable to the lessee

92



• Lease asset measurement, continued− Future lease payments to be received should be discounted using

the interest rate the lessor charges the lessee− In subsequent financial reporting periods, the lessor should calculate

the amortization of the discount on the lease asset and report that amount as an inflow of resources (example – interest revenue)

− Triggers for potential remeasurement

93



• Deferred Inflow of Resources – a lessor initially should measure the deferred inflow of resources as follows:− The amount of the initial measurement of the lease receivable− Lease payments received from the lessee at or before the

commencement of the lease term that relate to future periods, less any lease incentives paid to, or on behalf of, the lessee at or before the commencement of the lease term

94



• Underlying asset− A lessor should not derecognize the asset underlying the lease− A lessor should continue to apply other applicable guidance to

the underlying asset, including depreciation and impairment− However, if the lease contract requires the lessee to return the

asset in its original or enhanced condition, a lessor should NOT depreciate the asset during the lease term

95



• Additional guidance provided for:− Contracts with multiple components− Contract combinations− Lease modifications− Lease terminations− Subleases− Sale-leaseback transactions− Lease-leaseback transactions− Intra-entity leases− Leases between related parties

96



Preparing for implementation – Initial Phase• Determine what IT processes, applications and

controls will be needed and or developed• Identify population of leases (leasee and lessor)• Adopt policy/procedure/controls for determining the

discount rate• Adopt policy/procedure/controls for determining

lease term including reasonably certain criteria• Adopt procedures and controls to identify when

leases have multiple components, modifications, sublease agreements

97



Certain regulated leases are scoped out of the lease standard. What are the characteristics of those leases??a) Lease rates cannot exceed a reasonable amount, with

reasonableness being subject to determination by an external regulator

b) Lease rates should be similar for lessees that are similarly situated

c) The lessor cannot deny potential lessees the right to enter into leases if facilities are available, provided that the lessee’s use of the facilities complies with generally applicable use restrictions

d) All of the above

98


GASB 88 – Certain disclosures related to debt, including direct borrowings and direct placements

• Issued – March 2018• Effective – Periods beginning after June 15, 2018• Definition of debt for purposes of disclosures

− A liability that arises from a contractual obligation to pay cash (or other assets that may be used in lieu of cash) in one or more payments to settle an amount that is fixed at the date the contractual obligation is established

• Debt does not include leases, except for contracts reported as a financed purchase of the underlying assets, or accounts payable

99


GASB 88 – Certain disclosures related to debt, including direct borrowings and direct placements (continued)

• Additional note disclosures in summarized form− Amount of unused lines of credit− Assets pledged as collateral for debt− Terms specified in debt agreements related to

significant (1) events of default with finance-related consequences, (2) termination events with finance-related consequences, and (3) subjective acceleration clauses

• Governments should separate information in debt disclosures regarding direct borrowings and direct placements of debt from other debt

100


GASB 89 – Accounting for Interest Costs Incurred Before the End of Construction Period

• Issued – June 2018• Effective – Periods beginning after December

15, 2019• Interest cost incurred before the end of a

construction period should be recognized as an expense in the period in which the cost is incurred. Such interest cost should not be capitalized as part of the historical cost of a capital asset.

101


GASB 90 – Majority Equity Interests

• Issued – August 2018• Effective – Periods beginning after December 15, 2018• Majority equity interest in legally separate organization

− Investment • Accounted for using equity method• Special purpose government engaged in only fiduciary activities use

GASB 72 paragraph 64− Component Unit

• Equity interest in component reported using the equity method• Eliminate asset if blended

− 100 percent of equity acquired in a component unit• Follow guidance in GASB 69 for acquisitions

102


FASB UPDATE: TOPIC 606 & 2016-14

103


Revenue from contracts with customers – ASU 2014-09

• ASU 2014-09, Revenue from Contracts with Customers (Topic 606)

• Key considerations for health care− Self-pay revenue and implicit price concessions− Application of portfolio approach− Third party settlements – variable consideration and constraint− Performance obligations− Bundled payments− CCRC issues – life care contracts and contract acquisition costs− Disclosures


Revenue from contracts with customers – ASU 2014-09

• Different requirements for public entities (including conduit bond obligors) than for nonpublic entities

• Understand nature, amount, timing and uncertainty of revenue and cash flows

• Disclose quantitative and qualitative information− Disaggregation of revenue− Contract balances− Performance obligations− Significant judgments− Costs to obtain or fulfill a contract

Disclosures


Not-for-profit financial reporting – ASC 2016-14

• ASU 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities

Net asset classification

Liquidity andavailability

Investmentreturn

Reporting of expenses

Statement of cash flows

Footnote disclosures



• Liquidity and availability disclosures− Qualitative information (in the notes) on how the entity manages its

liquid resources to meet cash needs for general expenditures within one year of the balance sheet date

− Quantitative information that communicates the availability of current financial assets at the balance sheet date to meet cash needs

− Availability affected by:• Nature of financial asset• External limits imposed (donors, laws, contracts)• Internal limits imposed by governing board



• Sample disclosure adapted from AICPA Issue Analysis – Liquidity and Availability

As of December 31, 2016, XYZ Hospital System has a working capital (deficit) of $(85,572) and average days cash on hand (based on normal expenditures) of 7.

Financial assets available for general expenditure, that is, without restrictions limiting their use, within one year of the balance sheet date, consist of the following:

Cash and cash equivalents 70,322$ Accounts receivable, net 819,074Investments 144,838Assets limited to use:Board designated 1,200,000Donor restricted 500,000

2,734,234$

The System has certain board designated and donor‐restricted assets limited to use which are available for general expenditure within one year in the normal course of operations. Accordingly, these assets have been included in the qualitative information above. The System has other assets limited to use for donor‐restricted purposes, debt service and for the professional and general liability captive insurance program. Additionally, certain other board‐designated assets are desginated for future capital expenditures and an operating reserve. These assets limited to use, which are more fully described in Notes __ and __ are not available for general expenditure within the next year and are not reflected in the amounts above. However, the board‐designated amounts could be made available, if necessary.

As part of the System's liquidity management plan, cash in excess of daily requirements is invested in short‐term investments and money market funds. Occasionally, the Board designates a portion of any operating surplus to an operating reserve, which was $1,200,000 as of December 31, 2016. This fund established by the board of directors may be drawn upon, if necessary, to meet unexpected liquidity needs.

Additionally, the System maintains a $5,000,000 line of credit, as discussed in more detail in Note __. As of December 31, 2016, $5,000,000 remained available on the System's line of credit.



• Sample disclosure adapted from AICPA Issue Analysis – Liquidity and Availability

The table below represents financial assets available for general expenditures within one year at December 31, 2016:

Financial assets at year‐end:

Cash and cash equivalents 70,322$ Accounts receivable, net 819,074Investments 144,838Assets limited to use:Board designated 2,950,076Funds held by trustees 1,119,388Donor restricted 1,474,227

Pledges receivable, net 161,757Trusts and interests in foundations 122,498

Total financial assets 6,862,180

Less amounts not available to be used within one year:Board designated with liquidity horizons greater than one year (1,750,076)Funds held by trustees (1,119,388)Donor restricted with liquidity horizons greater than one year (974,227)Pledges receivable, net (161,757)Trusts and interests in foundations (122,498)

Financial assets not available to be used within one year (4,127,946)

Financial assets available to meet general expenditures within one year 2,734,234$


110


111


This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute audit, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. RSM US LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person.

RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent audit, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International.

RSM® and the RSM logo are registered trademarks of RSM International Association. The power of being understood® is a registeredtrademark of RSM US LLP.

© 2018 RSM US LLP. All Rights Reserved.

RSM US LLP


A Quick Break with Memorial Rehabilitation Institute


Health Care Hot Topics


HEALTH CARE HOT TOPICS RAPID FIRE

December 6, 2018


Speakers

Rick Kes

RSM Senior Health Care Industry Analyst

Matt Wolf

RSM Senior Health Care Industry Analyst

116


RSM Health Care Analysts’ Critical Themes in 2019

Causes• Value-based reimbursement• Consumerism* • Regulatory and legislative changes• Cost and demographic changes• Digital transformation* • Data analytics and AI*• Medical science innovationEffects• Disruptors • Merger and acquisition mania* • Alternative deals

117


Learning objectives

1. Learn what are the hot topic in health care

2. Learn why you should care about hot topics

3. Learn how you can use these hot topics at your organization

118

© 2018 RSM US LLP. All Rights Reserved. © 2018 RSM US LLP. All Rights Reserved.

DIGITAL TRANSFORMATION


Evolution of Digital

120

U.S. 1975 –2014

U.S. 2014 –Present

MIND

PRODUCT

CORE

MACHINE

PLATFORM

CROWD


Digital Transformation Definition

121


What does it all mean?

122

Digital transformation is not only about doing things differently, but

doing different things – from gathering and analyzing data for

smarter decision-making to engaging clients, customers and

suppliers in new ways


WHAT IS CONSUMERISM


What is Consumerism Mean for Health Care?

• More than an app• Individually customized• On-demand

124

Image Credit: University of Utah


Polling question

What is the biggest strategic issue you are facing right now?

A. Consumerization B. Developing a value-based contracting model C. Navigating the effects of disruptors D. Managing payor mix and changes in demographics E. Don’t know


Causes – High Deductible Health Plans

Source: Bureau of Labor Statistics

126

42%

55%

35%

45%

18%

0% 10% 20% 30% 40% 50% 60%

Overall

Financial Activities

Education and health services

Nonunion

Union

Percentage of Employees Covered by Employers in a HDP


Causes – Expectations

• All things digital

• Transparency

• Quality

• Consistency

127


Causes – Demographics

128

Source – ATKearney


BIG DATA


Big Data

130

Source: IBM


MEGA DEALS


Mega Deals – Vertical

132

1

2

3

Cigna and Express Scripts

United Health

CVS and Aetna


Mega Deals – Partnerships

133

1

2

Walgreens and Humana

Amazon, Berkshire, JP Morgan


Mega Deals – Private Equity

134

1

2

KKR – Envision and Acadia

Clearview Capital and Frontenac – 10 behavioral health deals each in the past 10 years

Source: Bloomberg


135


This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute audit, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. RSM US LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person. Internal Revenue Service rules require us to inform you that this communication may be deemed a solicitation to provide tax services. This communication is being sent to individuals who have subscribed to receive it or who we believe would have an interest in the topics discussed.

RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent audit, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International.

RSM® and the RSM logo are registered trademarks of RSM International Association. The power of being understood® is a registered trademark of RSM US LLP.


136


Networking LUNCH


Joe DiMaggio Children’s HospitalTOY Drive

THANK YOU!!


Update from the Washington Insider

Washington Update on Legislative and Regulatory Agenda

Presented to Florida Chapter Healthcare Financial Management Association

B Y

R I C H M E A D E

V I C E C H A I RM A N

P R I M E P O L I C Y G R O U P

R I C H . M E A D E@ P R I M E ‐ P O L I C Y . C OM

@ R EM E A D E

Healthcare Dominant Election Issue

WWW.PRIME-POLICY.COM | (202) 530-0500

Democratic candidates ran and won on healthcare issues such as preserving the protections for pre‐existing conditions in the Affordable Care Act (ACA).

Forty one percent of voters said the most important issue facing the country.

One in five voters said healthcare was the single most important factor in deciding who they voted for in the election.

Half of the campaign ads run in the elections were about healthcare.

Healthcare Dominant Election Issue


Percent of voters who thought the outcome of the election would improve the outlook for the following healthcare issues:

Sixty four percent on prescription drug costs

Sixty five percent on affordability of healthcare

Sixty six percent on quality of healthcare

Sixty seven percent on access to healthcare

Sixty seven percent on innovation in healthcare

Election Results


116th Congress115th Congress

53 Republicans (+2)45 Democrats (-2)2 Independents

234 Democrats (+39)200 Republicans (-39)

*CA-21 pending

51 Republicans47 Democrats2 Independents

236 Republicans197 Democrats

New Players on Capitol Hill


House Energy & Commerce Committee

Richie Neal (D-MA) Full Committee Chairman

Lloyd Doggett (D-TX) Likely Health Subcommittee Chairman

House Ways & Means Committee

Senate Finance Committee

Frank Pallone (D-NJ) Full Committee Chairman

Anna Eshoo (D-CA) Likely Health Subcommittee Chairman

Chuck Grassley (R-IA) Full Committee Chairman

Pat Toomey (R-PA) Likely Health Subcommittee Chairman

Oversight Agenda


House Oversight and Government Reform Committee incoming chairman Elijah Cummings (D‐MD) has talked about subpoenas for drug companies over pricing.

Oversight likely to be conducted over the rulemaking done by federal agencies around the following regulations:

‐ Association health plans

‐ Short‐term health plans

Democratic committee chairmen will have a robust oversight agenda in healthcare examining companies and federal agencies alike.

Elijah Cummings (D‐MD)

Oversight Agenda


Congressional Review Act

The Congressional Review Act (CRA) allows Congress to vote to overturn regulations before they take effect.

There is a sixty day review period where Congress can pass a privileged resolution to overturn regulations promulgated by federal agencies.

Resolution is privileged so it can be called up immediately in the Senate.

A simple majority only is required to pass CRA resolutions of disapproval.

Legislative Agenda


Pre‐existing conditions

Protecting individuals with pre‐existing health conditions became a big campaign issue in the past election cycle.

Incoming Ways and Means Committee Chairman Richie Neal (D‐MA) has vowed to have a bill on the House floor soon in the new year offering more protections to individuals with pre‐existing health conditions.

Details of the bill have not emerged but it has potential for bipartisan support.

10 Republican Senators introduced a bill for guaranteed issue in the event Texas v. United States is successful in the courts.

Legislative Agenda


Drug Pricing – Negotiated Pricing

Negotiated pricing in the Medicare Part D program has long been a Democratic priority.

Democratic policy platform “A Better Way” heading into elections promoted negotiated pricing.

President Trump has expressed support for negotiated pricing.

Congressional Republicans have stood in strong opposition to negotiated pricing.

Legislative Agenda


Drug Pricing – “Price Gauging Enforcer”

A Better Way called for creating of a Senate confirmed independent director of an agency to oversee drug companies.

New agency would have a dedicated funding stream to avoid political influence (similar to the CFPB).

Agency could impose fines on drug companies for excessive price increases.

Fine revenue would be directed to the National Institutes for Health (NIH) for new cures research.

Legislative Agenda


Drug Pricing – Importation

A Better Way did not call for importation of drugs as a way to lower costs.

Prominent Democratic Members of Congress (Bernie Sanders, Corey Booker, Elijah Cummings) support importation.

Bipartisan support and opposition exists for importation.

Legislative Agenda


Opioid Epidemic

New Democratic Majority will want to put forward their priorities for combatting the opioid epidemic.

Additional funding and changes to Medicaid will be priorities.

There is bipartisan interest in revisiting privacy issue around patients health records (42 CFR Part 2).

Legislative Agenda


ACA Market Stabilization

Restoration of cost‐sharing reduction (CSR) subsidies.

Section 1332 waivers more flexible and faster approval. Review period cut from 180 to 90 daysAutomatic approval of “me too” waivers

Expand access to “Copper” plans.

Funding for state reinsurance plans.

Legislative Agenda


Medicare

“Medicare for All” gaining Democratic support but not likely to see legislative action.

Bipartisan interest in modernizing Medicare Part B.

Republican efforts to slow spending growth not likely to advance.

Regulatory Agenda


International Pricing Index

Centers for Medicare and Medicaid Services (CMS) released an advanced notice of proposed rulemaking (ANPRM) to institute an International Pricing Index (IPI) model for pricing Medicare Part B drugs and biologicals.

Shift away from ASP pricing model to a target price derived from an international price index.

Use vendors to supply Part B drugs and biologicals to physician group practices and hospitals.

Evaluate new model after 5 years.

Regulatory Agenda


Protected Class Drugs in Part D

Medicare Part D requires plans to offer substantially all therapies in six “protected classes” of drugs including: antidepressants; antineoplastics; antipsychotics; antiretrovirals; and immunosuppressants.

CMS issued proposed rule to grant more flexibility to the Part D plans around the six protected classes.

Proposed rule makes three exceptions to the requirements around the protected class drugs:

1. Implement prior authorizations for protected class drugs;2. Allow exclusions if the drug is only a new formulation of an existing single‐source drug; and3. Allow exclusions if the price is increased beyond certain thresholds.

Regulatory Agenda


Unified Regulatory Agenda

Payment system rules

Medical device competitive bidding reforms

Over‐the‐counter hearing aids

Questions?



A Quick Break with Memorial Rehabilitation Institute


Automation in Health Care Finance


HEALTH CARE FINANCE TRANSFORMATION WITH

ROBOTIC PROCESS AUTOMATION (RPA)

December 6, 2018


Speakers

Greg Maddux, RSM US LLP

Partner – Health Care Finance Transformation & Automation

Len Mandel, RSM US LLP

Director – Health Care Revenue Cycle Advisory & Automation

161


FORCES DRIVINGFINANCE TRANSFORMATION & AUTOMATION


What does the Modern CFO want from Digital Automation?

Improved business planning and forecasting

Improve financial close and reporting

$ Significant reduction in planning cycle time

Integrity and reliance of data

Agile reporting platform

Access to a dynamic, tech savvy workforce

Shorten close cycle times to 5 days or less

> 40% reconciliation efficiencies

Fully integrated financials

Systems to enable the Millennial workforce

Reduction in transactional tasks to retain top talent

Ability to support LOB mgmt. Access to real time data that enables decision making

Strategic departments that are viewed as business partners

Improved ability to respond to regulatory requirements / costs

Reduced regulatory fines / fees

Reduced audit costs

Reduced audit timelines

Reduced F&A operational spend Decreased costs for transactional finance activities

Improve enterprise risk management Aligned financial control structure without gaps

Increased bandwidth to focus on risk activities, cash management, credit management, etc.

Ability to engage in broad business transformation Reliance on financial analysis to identify transformation opportunities

Ability to focus on continuous improvementShift back office

operations to analytical activities Remove data entry and

manipulation tasks

Shift labor force to highly skilled staff focused on analytical activities


Finance Digital Evolution

Finance organization

Integrated ERP, EHR and reporting

Highly trained finance teams

SpeedScalability VisionCosts Control Insight

Digital solutions

Cloud Robotics Cognitive computing

BlockchainAdvanced analytics

Valu

e dr

iver

s


Disruptor

Transformer

ExplorerStructured

Transactional• Disjointed processes

• Legacy apps

• Transitionally overburdened

• Non existent digital initiatives

• Automated basic business needs

• Continuous assessment of process and pains

• Inconsistent and poorly integrated apps

• Digital initiatives executed on a project basis

• Automation of key transactional areas

• Integration of critical apps

• End to end viability to drive performance

• Alignment of digital priorities with IT

• Finance provides consistent but not innovative products

• Automated and dynamic

• End to end integration

• Fully informed decision making

• Synergetic with IT

• Full alignment of Finance digital roadmap with IT

• Internal channels leveraged to enhance customer experience

• Digitally enabled product / service experience on a continuous basis

• Continuous improvement of digital and functional processes

• Ecosystem awareness and feedback continuously pushes innovation

• Finance organization supports primarily analytical activities to drive business activities

Digital Evolution – Becoming a DisruptorThe path to becoming a digital disruptor is directly aligned with modernizing the finance function, many CFO’s consider themselves further along than they truly are


ROBOTIC PROCESS AUTOMATION


Robotic Process Automation (RPA) Introduction

• What is RPA• The Digital Workforce• RSM/Automation Anywhere partnership• Common use cases and flows• Demonstration• Health Care Case Studies• Getting Started with RPA

169


Question

Where are you in your Robotic Process Automation (RPA) journey?

A. We have a number of bots in productionB. We’re in the process of deploying RPAC. We’re currently evaluating RPAD. We’ve heard about RPA and want to learn moreE. We don’t know how to spell RPA

170


Robotic Process Automation Overview

171

Robotic Process Automation (“RPA”)RPA refers to a set of modular software programs (or “bots”) to complete structured, repeatable, and logic-based tasks by mimicking the actions taken by existing human staff.

• Developed bots are capable of interacting with and integrating disparate enterprise applications, databases, and files to limit the business need to develop custom, application specific integrations.

• A set of scheduled bots are capable of running on multiple servers within a company’s environment simultaneously with minimal impact to resource and network capacity.

RPA Value PropositionAcross industries, RPA enables organizations of

all sizes to efficiently scale operations with minimal impact to existing business processes.


The Digital Workforce

• Variety of robotic and automated solutions for driving productivity

• Not a physical embodiment of a digital worker

• Virtual robot (software)

• Works in conjunction with the human workforce

172


Transformation to a Digital Workforce

CoffeeAnalyzeThinkAct

Your human workforce

Digital Workforce

RPA Cognitive Smart Analytics

Your digital workforce


• Uses systems like a person

• Rules-based• Front office• Back office• Structured data

Acts like a personEnterprise RPA

Thinks like a personIQ Bot

Analyzes like a personBot Insight

• Unsupervised learning• Supervised learning • Semi-structured data • NLP• Fuzzy logic

• Real-time • Actionable Insights• Mine across 1000s of

apps• Data visualization• ML identified trends

Key Components of a Digital Workforce


Automating Tasks Across the Enterprise

ARTIFICIAL INTELLIGENCE

Real Time Analytics

Robotic Process Automation

Cognitive

DATA CAPTURE

DATA ENRICHMENT

DATA VALIDATION

PROCESS

RECONCILE

ANALYZE & REPORT

Collect and synthesize your data

Modify, rationalize, normalize your data

Validate, authenticate your data

Perform the process actions

Ensure consistency and accuracy

Reliable, accurate, timely analysis and reporting


Robotic Process Automation Overview

No Physical Robot

Quick Deployment

Uses existing applications

Mimics human actions

Little change in existing

infrastructure

Documents process steps

• RPA Benefits⁻ Increased Productivity & Efficiency – Focus

employees on higher value activities

⁻ Scalability and Flexibility - replicate robotic tools across geographies/business units

⁻ Accuracy - Robot’s don’t make mistakes or judgement calls, and they don’t get tired

⁻ Cost Savings – automation quickly reduces administrative and back office costs for fast ROI

176


Impact to Organizations

RPA technologies are more effective when leveraged alongside structured, repeatable tasks. According to a 2017 survey from Gartner Research:

• Workers surveyed categorize 35-41% of their daily work as routine

• 32-37% of work is a mix of routine and non-routine

Manual aspects of non-routine processes can be also be automated to reduce the number of touchpoints required to complete.

177


AUTOMATION ANYWHERE / RSM PARTNERSHIP


Automation Anywhere – An Overview

1,400+Enterprise customers

250+Partners

worldwide

90+Countries with

customers

1,000+Employees worldwide

800,000+Digital Workers

Deployed

Leader in the Forrester Wave for RPA Leader in RPA PEAK Matrix Leader in RPA Customer Experience

WORLD’S MOST WIDELY DEPLOYED DIGITAL WORKFORCE PLATFORM


PLATFORM ARCHITECTURE

• Infrastructure-agnostic Architecture

• Ability to extend from desktops to private, public and hybrid cloud.

• Some processes start on desktops and, as RPA matures, migrate to batch processing in data centers.

• Others processes may require human interaction or do not otherwise lend themselves to server-based processing.

• Control Room ensures that any bot can be deployed and managed securely, at enterprise scale, regardless of deployment architecture.

1. CONTROL ROOMCentral management and control layer

2. BOT CREATORSClient system for bot development

3. BOT RUNNERS Runtime systems on desktops, datacenters and cloud infrastructure


COMMON USE CASES


Top RPA Use Cases

• Financial Operations – data entry, invoice processing, taxes, Accounts payable

• Human Resources – Track Timesheets, onboarding/offboarding processes

• Information Technology – fix technical problems, password setting, setting up application accounts, system maintenance

• Operations – Procurement, requisition approvals, supplier comparisons, Re-Orders

• Data & Analytics – Collecting data across systems, and monitor processes

182


RPA Use Cases with Automation Anywhere

Key Partner Aspects

Value DrivenWe ensure clients extract

the most value

SeamlessEasily configured to

integrate across platforms

SupportReliable, real-time support available post integration

F&A HR/Payroll Revenue Cycle

Order to Cash Credit Analysis Sales Order Processing Customer MDM Order Entry Reports by segments

Procure to Pay / AP 3 Way Match PO Issuance Invoice Receipt Vendor Master Payment Process Duplicate Payment Tracking

Record to Report Monthly close Treasury and tax Financial statements General ledger Journal entry processing Inter-company accounting Account reconciliations Fixed assets and projects Cost & inventory accounting

Maintain Master Data Candidate Identification Offer Letter Process Onboarding and Exit Appraisal-updating

process / Change Payroll Status

Position Management Reporting Line Change Superannuation Payment Summaries Employment Type

Updates Service Desk Reports Distribution Leave Amendments

Insurance Eligibility (270/271 transaction)

Claim Edits Duplicate Medical Records Credit Balances Claim Status Denials management (835

remittance) Adjustment Posting Payment variance Rebilling Payer acknowledgement

reports

Supply Chain

Order Prioritization Master data management Invoice verification Receipt confirmation Scheduling processes Reporting Production information

capture Inbound processing Inventory management

processes Pricing management Billing Freight costing


RPA in Action for Revenue Cycle Before RPA

184

Key Pain Points

Manual processing involving repetitive and mundane steps

Inefficient & long cycle time

Inefficient use of billing resource

Timely filing penalty incurred if not responded to within pre-defined timeframe

Denial Management835 Remittance Example for Medical Records Request

End

Pay

erB

iller

Send Claim / Encounter 837

claim file to payer

Receive & process 837 claim file

835 Remittance advice

For each B12 CARC denial code:• Navigate to EHR clinical application• Search for patient MRN, DOS, provider• Obtain clinical documentation • Send to payer

Patient Accounting Rep manually opens, reviews and responds to each B12 CARC account in

queue

Inbound file received; OPS job routes B12 CARC denial code accounts to Patient Accounting work

queue

yes

End of B12

queue?

noStart

LegendStart/En

d process

Manual Task /

Human Interaction

Automated operational

task


RPA in Action for Revenue Cycle After RPA

185

Key Benefits

No manual / human intervention

Improved accuracy

Realignment of billing resource to other meaningful tasks

Enables department to refocus on value-add activities

Denial ManagementAutomated 835 Remittance for Medical Records Request

End

Pay

erB

ot

Receive & process claim request

835 Remittance advice

For each B12 CARC denial code:• Navigate to EHR clinical application• Search for patient MRN, DOS, provider• Obtain clinical documentation (create .pdf)• Send to payer via secure email system• Auto-script note in patient account notes

Receive inbound 835 file from payer; route B12 CARC denial codes to Patient Accounting work

queue

yes

End of B12

queue?

no

Bill

er StartSend Claim /

Encounter 837 claim file to payer

LegendStart/En

d process

Manual Task /

Human Interaction

BOT Task / Interaction


RPA DEMONSTRATION


Demonstration

187

https://automationanywhere1.sharepoint.com/:v:/g/SalesEngineers/EbMNRPnyg‐BInkttBL5S‐t0BCXWdYowEJMygMj8tvlvNzw


SELECTED RPA CASE STUDIES


BENEFITSSOLUTIONCHALLENGE PROCESSES AUTOMATED

• Reduce claims processing

time and deliver operational

compliance

• Bots automated benefits

enrolment processing

including claims processing,

premium adjustments,

termination overages,

PeopleSoft updates, Leave of

Absence, and other various

procedures

• Premium adjustments

• Termination coverage

• Dependent change

• LOA updates

• Document creation

• Increase in customer satisfaction

• Significant quicker turn-around

times

• Better tracking and accountability

of operations and systems

• Faster more accurate financial

settlements

National Health Care Provider



Cerner – Health care

• Reduce cycle time and

produce quality and error-free

Electronic Medical Record

(EMR) data

• Bots automated the data

integration process of records

in spreadsheets, different

applications and

customer’s Health care

Resource Managment

System (HRMS)

• EMR data integration

• Data validation

• Data updates

• Elimination of manual

intervention in process execution

• Acceleration of the company’s

ability to bring new clinics online

• Total ROI: 628%

• Payback: 6 months

• Average annual benefit:

$130,000

International Health Care Technology Company



Merck – Health care Pharmaceuticals

• Simplify the vendor creation

process

• Bots automated vendor

creation, data validation,

exception handling, work

allocation approval and

analysis in SAP

• Vendor creation

• Data validation

• SAP Data analysis

• Reduction in vendor creation

and validation time

• Saving in manual labor cost of

data validation

• Creation of error free data

Large US Pharmaceutical Manufacturer



Logistics Health – Health care

• Expedite medical sign-off

process to speed medical

care delivery to US military

• Bots automate exam records

review and sign-off process,

interacting with local HRMS

and US Military websites

• EMR data acquisition

• Web data acquisition

• Data analysis

• Exception handling

• Document generation

• Approval notifications

• Speed medical care to US

military personal

• Significant reduction in sign-off

processing time

Health Logistics Company


GETTING STARTED WITH RPA


RSM RPA Approach

RPA Rapid Assessment

• 2-4 weeks• May contain Small Proof

of concept• Feasibility Study of

processes• Licensing Requirements• RPA Roadmap

RPA Pilot

• 1-3 Months• 2-4 processes in

production• Environment set up• Initial client training• Confirm ROI• Update RPA plan

Scale Up

• 6-12 Months• Define plan• Enable business users• Establish operating

model and center of excellence

• Implement Robotic Development Life Cycle (RDLC)

• Define internal/external support team

194


We look at process from five distinct perspectives

Value ─ Does the business receive appropriate value in terms of cost, quality and performance?

Feasibility ─ Are processes predictable, routine, and structured?

Capability ─ Does the business have the right people and technology to operate efficiently and effectively?

Alignment ─ Is the department or function positioned to support the strategy and vision of the business?

Innovation ─ Is the business in a position to explore new ideas and leverage technology?

RPA Rapid Assessment®

An unbiased, “quick-hit,” diagnostic evaluation and feasibility analysis of current business processes and their complexities that help companies identify key candidates for automation.

We help clients optimize business process by identifying appropriate use cases for automation to drive overall organizational efficiencies.

Ease

of Im

pleme

ntatio

n

Category Score

High Priority

Medium Priority

Sourcing Roadmap

Insurance

Direct Mail

Hardware and Equipment

Telephone Service

SmallParcel

Air Trans-portationLodging

Internet Service

Telemar-keting

Point of Sale

Eqpmnt

Postage

EquipmentRental

Servers

Safety

LowPriority

ProjectTeam

Subject Matter Experts

Executive Discussions

We take the time to understand existing business processes, their touchpoints and inherent complexity to assess feasibility for automation.

We compile findings and associated complexities to develop a set of ROI estimates that provide business leaders insight into the value of automation.

We provide clients with a detailed strategy to develop and deploy RPA technologies to improve business operations.

Feasibility Analysis ROI Calculation Bot Development Roadmap


196

QuestionsAnd Answers?


Speakers

Greg Maddux, RSM US LLP

[email protected]

(816) 751-1845

Len Mandel, RSM US LLP

[email protected]

(954) 234-8925

197


Block Chain in Health Care

High impact C-level executive and corporate development professional with best in class analytical, communication and persuasive skills. Creates value through clarity of insights and identification of key economic drivers for new and emerging business. Hands on experience navigating multiple technology and market cycles as both an analyst and executive. Delivers a unique combination of extensive C-level technology industry experience, coupled with 10 years as a Wall Street analyst covering the TMT sector. Previously worked at Merrill Lynch, Eagle River (Craig McCaw) and The Bank of New York. Held C-level executive positions in software, cloud, and wireless infrastructure companies. Maintains deep and longstanding professional relationships.

Tim McDonald


Agenda

• Introduction• Understanding Blockchain through the lens of Bitcoin• What innovations enabled the solution?• How do these innovations apply to Finance?• Other use cases for Blockchain• Questions


Introduction

Timothy McDonald− Member of RSM's National Blockchain and Cryptocurrency team, with a

focus on strategy and the digital capital markets− Works with companies to understand the strategic application of Blockchain

enabled services for driving value creation, improving capital efficiency and enhancing competitive differentiation


The Parable of the Blind Men and the Elephant


The Many Faces of Blockchain

• Hard currency backed by digital gold− End of easy money

• Digital securities platform− Providing 24x7 global liquidity and fractional interests

• Supply chain data infrastructure− Enabling efficient coordination and tracking

• Distributed apps platform− Challenging the centralized tech titans

• General Purpose Technology Platform− Application to any form of value transfer


Question

• When do you think Blockchain will impact your operations?

− Within the next 12 months− Over the next 1 to 3 years− Over the next 3 to 5 years


Understanding Blockchain Through the Lens of Bitcoin

“Blockchain is to Bitcoin, what the internet is to email. A big electronic

system, on top of which you can build applications. Currency is just

one.”

— Sally Davies, FT


Let’s Try to Keep it Simple

If you can’t explain something in simple terms, you don’t understand it


The Problem Solved by Bitcoin : How to Create Digital Cash (e-cash)

“The one thing that’s missing, that will soon be developed, is a reliable e-cash; a method whereby on the Internet you can transfer funds from A to B without A knowing B or B knowing A, the way in which I can take a $20 bill and hand it over to you.”

Nobel Prize winning economist Milton Friedman on the potential of e-cash (1999)


What’s So Hard About Creating Digital Cash?

• Since the early 1980’s developers had been trying to find a way of digitally replicating the cash transaction− Direct transaction− Frictionless− A to B transaction

• Difficult to avoid “double-spending”− E-mail, pictures, video or any code can be copied and resent− Double-spending destroys value of digital cash

• Solutions required an intermediary to verify and process transactions− By mid 2000’s the idea of e-cash was given up as effectively unsolvable


A New System of Digital Record Keeping

So if you want to create a digital cash that solves the “double spending” problem, and is able to be transacted everywhere across the globe, you will need the world’s largest system for record keeping. This will need to be the single, undisputable record to truth, with all transactions fully transparent and secure.


Bitcoin’s Brilliant Simplicity

• Nine pages• Eight references• Combination of known solutions• 10 years later $100B+ in market value


Bitcoin is Designed to Address Demand for e-cash

“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party without going through a financial institution.”

“We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.”

Bitcoin: A Peer-to-Peer Electronic Cash SystemSatoshi Nakamoto, October 31, 2008


Solution Designed From Existing Building Blocks

• Peer-to-peer network− Napster (1999) and Bittorrent (2001)− Video and music sharing

• Timestamping transactions by hashing− Surety’s electronic record (1995)− Cryptographically hashing content (creates unique digital fingerprints)− Timestamping and public record (open advertising in the New York Times)

• Hash-based proof-of-work− Hashcash (2002) − A mechanism to limit email spam by forcing email senders to solve

computational puzzles− Bitcoin re-purposed these proof-of-work puzzles to become the basis of

bitcoin mining (transaction validation)


Peer-to-Peer Network


Hashing: Creating Unique Digital Fingerprints

Hello! My name is Tim Mcdonald

8E7B7B1A9757C48C28AD0E2B3E6123250BCA99B93BEE9FE8E7B5749267214A0BHello! My name is Tim McDonald

93610B71655A99729E772776F245A3291BC8D03D0D521C19DF2329024637C711


Proof of Work

• Requires showing that the computer performed work, to prove that they spent real-world resources.

• Proof of work was essentially the first concept akin to virtual scarcity that didn’t rely on a central party: it tied digital data to the real-world, limited resource of computing power.


Bitcoin: Global Open Ledger of Transactions

• Open ledger− Every node has list of all transactions− Nodes verify if future transactions are valid to prevent double spend

• Encryption and digital signatures ensure authenticity − Public-key encryption (asymmetric encryption)− Private keys ensure transaction initiated by account holder

• Enable participants to agree on a single record of the order of transactions− Timestamp records− Prevents double-spend without trusted third party involved

• Provide mechanism to prevent fraudulent transactions− There must be a cost in the system to falsifying transactions− Establishing immutability through real cost− Locking down ledger state at point in time


The Bitcoin Architecture

• De-centralization: peer-to-peer architecture− No central point of failure or censorship

• Pseudo-anonymity− Use of public-private key encryption for transactions

• Prevents double-spend− Time stamped, then hashed transaction records

• Transaction validation− Proof-of-work

• Definition of a “Bitcoin” − “We define an electronic coin as a chain of digital signatures.”


Bitcoin Launched the Blockchain Architecture

• Bitcoin addressed a long-standing challenge in digital value transfer− Preventing “double-spending”

• Created a novel architecture− Peer-to-peer− Cryptographic hashing and timestamping of records− Preventing fraudulent transactions through proof-of-work

• Created a new system of digital record keeping− Distributed− Cryptographically secure− Common ledger (enabled triple entry bookkeeping)

• Broad range of consumer and enterprise use cases− Explosion of ideas for applying this novel architecture


So What Exactly is a Blockchain?

A Blockchain is a ledger where transactions are recorded and confirmed

anonymously. It’s a record of events that is shared between many

parties. More importantly, once information is entered, it cannot be

altered.


The technology can work for almost every type of transaction involving value or data, including money, goods, information and property.

Its potential uses are almost limitless: from collecting taxes to enabling migrants to send money back to family in countries where banking is difficult, property title, identity, voting, audit, energy grid optimization and contracts – “Smart contracts”

Blockchain could also help to reduce fraud because every transaction would be recorded and distributed on a public ledger for anyone to see – anti-money laundering and know your client. (AML/KYC)

The exponential and disruptive growth will be in an ecosystem of private and public blockchains where firms, customers, and suppliers can collaborate in a secure, auditable and virtually verifiable way.

Broad Potential Impact


Blockchain in Finance: Global Payments

Source: World Economic Forum


• Fidelity announces trade execution and custody solution for cryptocurrencies

• Walmart’s food safety blockchain launched commercially in September 2018

• IBM and Maersk join forces in joint venture called TradeLens, which is creating a platform digitizing the global shipping industry supply chain

• Intercontinental Exchange (ICE) announces partnership with Microsoft, Boston Consulting Group, and Starbucks to launch an institutional grade digital asset ecosystem with warehousing as well as merchant and consumer applications

• AXA Insurance launches Fizzy, a flight delay insurance policy leveraging smart contracts

• We.Trade platform for trade finance began trading in July 2018 (Includes names such as HSBC, Santander, Societe Generale, and Natixis)

• The World Bank, in conjunction with Australia's largest bank, created, allocated, transferred, and managed $73.16 Million worth of two-year bonds on a blockchain network

Recent Market Developments


Understanding Blockchain is a Strategic Priority

• Blockchain is a system architecture for managing and exchanging units of value (money, goods, information and property)− It has applications for any process and system used for tracking and

exchanging value both within and outside the organization

• Customers, supply chain partners, financial institutions and capital markets participants are developing Blockchain enabled services− Understanding Blockchain is a strategic imperative for finance professionals

• Blockchain services are tied to existing systems and processes− Its important to take an enterprise-wide holistic view of the opportunities


WHAT DOES THIS MEAN FOR HEALTH CARE?


Blockchain is Critical to Health Care Digital Transformation

Image Credit: University of Utah


Blockchain and Health Data Security

• Immutable• Distributed ledger• Data integrity saves lives

227


Will Blockchain Solve Interoperability?

• No• Large players must agree to standards• Blockchain is just a tool• Have EHR systems delivered the Triple Aim?


Selected Health Care Block Chain Use Cases

229

Relative Implementation Complexitynot to scale

Low High

Prescription Verification

Supply ChainRecalls

PhysicianCredentialing

Patient ControlOf Medical Records

Revenue CycleSmart Contracts


This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute audit, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. RSM US LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person.

RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent audit, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International.

RSM® and the RSM logo are registered trademarks of RSM International Association. The power of being understood® is a registered trademark of RSM US LLP.


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