received - oregon...name and address of the domestic insurer to which this application relates and a...
TRANSCRIPT
RECEIVED MAR l 0 2016
FORM A Division of Financial Regulation STATEMENT REGARDING THE
ACQUISITION OF CONTROL OF OR MERGER WITH A DOMESTIC INSURER
A TRIO Health Plans, Inc.
BY
Grants Pass Management Services, Inc. dba Oregon Health Management Services
(Applicant)
Filed with the Department of Consumer and Business Services of the State of Oregon Dated: February 22, 2016
Person to Whom Notices and Correspondence Concerning this Statement Should be Addressed:
Raylene Dalke CEO Oregon Health Management Services 1867 Williams Hwy., Suite 108 Grants Pass, Oregon 97527
ITEM l. METHOD OF ACQUISITION
Name and address of the domestic insurer to which this application relates and a description of how controlis to be acquired:
ATRIO Health Plans, Inc. 2270 NW Aviation Dr., Suite 3 Roseburg, Oregon 97470
ATRIO Health Plans, Inc. ("ATRIO"), an Oregon for-profit business corporation, has been licensed as a Health Care Service Contractor in Oregon since March 31, 2005. ATRIO has a Medicare Advantage contract with the Centers for Medicare and Medicaid Services ("CMS"), whereby it operates various Medicare Advantage plans and provides Medicare covered health care benefits to qualified Medicare beneficiaries in Douglas, Klamath, Marion, Polk, Josephine, and Jackson Counties, Oregon. A TRIO also offers individual and group commercial health benefit plans both inside and outside the ACA marketplace in Douglas, Klamath, Marion, Polk, and Josephine Counties, Oregon.
Oregon Health Management Services ("OHMS") will purchase 500 shares of ATRIO Series A Voting Stock for $1,500,000. A TRIO and OHMS entered into a Stock Purchase Agreement ("SPA") on February 27, 2014. Under the terms of the SPA, A TRIO agreed to bid
for a Medicare Advantage contract in Josephine County, to develop a Medicare Advantage campaign in Josephine County, to conduct open enrollment activities in Josephine County. If ATRIO could achieve annualized premiums of$15,000,000 or greater from accepted enrollees in the Medicare Advantage plans that it offers in Josephine County by December 31, 2016 (or such later date as the parties agreed), ATRIO agreed to sell OHMS 500 shares of its Series A Voting Stock to OHMS.
As part of the SPA, OHMS agreed to enter into a Medicare Advantage Services Agreement with A TRIO, whereby OHMS would deliver a network of specialists and hospital providers to ATRIO and placed $1,500,000 in an escrow account with Allen Trust Company, Inc.
ATRIO has achieved the $15,000,000 threshold specified in the SPA and the parties intend to complete the stock purchase as outlined in the SP A.
ITEM 2. IDENTITY AND BACKGROUND OF THE APPLICANT
(a) Name and address of the applicant:
Oregon Health Management Services 1867 Williams Hwy., Suite 108 Grants Pass, Oregon 97527
(b) OHMS is a physician-owned coordinated care company that provides Medicaid managed care services to Oregon Health Plan members in Josephine, Douglas and Jackson counties. OHMS is the sole member of Primary Health of Josephine County, LLC (Primary Health), which currently holds a Health Plan Services Contract, Coordinated Care Organization Contract #143120-6, with the State of Oregon. PrimaryHealth has a Management Services Agreement with OHMS to provide managed care services to Primary Health enrollees.
OHMS entered into a Medicare Advantage Services Agreement (Services Agreement) with A TRIO on January 1, 2014 under which OHMS arranges for the provision of health services to ATRIO enrollees in the service area covered by the Services Agreement.
(c) A chart is attached hereto as Exhibit A clearly presenting the identities of the interrelations among the applicant and all affiliates of the applicant.
ITEM 3. IDENTITY AND BACKGROUND OF INDIVIDUALS ASSOCIATED WITH THE APPLICANT
Board of Directors of OHMS: I. (a) Name and Business Address:
John Spencer Countiss, M.D. 495 Ramsey Ave. Grants Pass, Oregon 97527
(b)
(c)
(d)
2. (a)
(b)
(c)
(d)
3. (a)
(b)
Present occupation/employment, name/address of employer: Physician Grants Pass Clinic 495 Ramsey Ave. Grants Pass, Oregon 97527 Positions Held: President of OHMS Occupation/Employment/Positions Held Over Five Years: See biographical affidavit attached hereto as Appendix A.1 Criminal Convictions: None See third-party background check attached to biographical affidavit Appendix A.1
Name and Business Address: Haitham B. Haddad, M.D. 495 Ramsey Ave. Grants Pass, Oregon 97527 Present occupation/employment, name/address of employer: Internist Grants Pass Clinic 495 Ramsey Ave. Grants Pass, Oregon 97527 Positions Held: Director of OHMS Occupation/Employment/Positions Held Over Five Years: See biographical affidavit attached hereto as Appendix A.2 Criminal Convictions: None See third-party background check attached to biographical affidavit Appendix A.2
Name and Business Address: Andrew Donald Luther, M.D. 495 Ramsey Ave. Grants Pass, Oregon 97527 Present occupation/employment, name/address of employer: Physician Grants Pass Clinic 495 Ramsey Ave. Grants Pass, Oregon 97527 Medical Director PrimaryHealth of Josephine County 1867 Williams Hwy., Suite 108 Grants Pass, Oregon 97527 Positions Held: Director of OHMS
(c)
(d)
4. (a)
(b)
(c)
(d)
5. (a)
(b)
(c)
(d)
Occupation/Employment/Positions Held Over Five Years: See biographical affidavit attached hereto as Appendix A.3 Criminal Convictions: None See third-party background check attached to biographical affidavit Appendix A.3
Name and Business Address Theo I-I. Powell, M.D. 495 Ramsey Ave. Grants Pass, Oregon 97527 Present occupation/employment, name/address of employer: Surgeon Grants Pass Clinic 495 Ramsey Ave. Grants Pass, Oregon 97527 Positions Held: Director of OHMS Occupation/Employment/Positions Held Over Five Years: See biographical affidavit attached hereto as Appendix A.4 Criminal Convictions: None See third-party background check attached to biographical affidavit Appendix A.4
Name and Business Address: Marcel Wiggers, M.D. 495 Ramsey Ave. Grants Pass, Oregon 97527 Present occupation/employment, name/address of employer: Physician Grants Pass Clinic 495 Ramsey Ave. Grants Pass, Oregon 97527 Positions Held: Secretary of OHMS Occupation/Employment/Positions Held Over Five Years: See biographical affidavit attached hereto as Appendix A. 5 Criminal Convictions: None See third-party background check attached to biographical affidavit Appendix A.5
Officers of OHMS 1. (a) Name and Business Address:
Susan Roylene Dalke 1867 Williams Hwy., Suite 108 Grants Pass, Oregon 97527
(b) Present occupation/employment, name/address of employer: CEO Primary Health of Josephine County 1867 Williams Hwy., Suite 108 Grants Pass, Oregon 97527 Positions Held: CEO of OHMS
(c) Occupation/Employment/Positions Held Over Five Years: See biographical affidavit attached hereto as Appendix A.6
( d) Criminal Convictions: None See third-party background check attached to biographical affidavit Appendix A.6
ITEM 4. NATURE, SOURCE AND AMOUNT OF CONSIDERATION
(a) OHMS will pay ATRIO $1,500,000 for 500 shares of Series A Voting Stock it will be purchasing in ATRIO. The consideration has been placed in an escrow account with Allen Trust Company, Inc.
(b) The total consideration of$1,500,000 in regards to OHMS's purchase of 500 shares of Series A Voting Stock is based on a price of $3,000 per share which the A TRIO Board of Directors and shareholders have determined to be fair and adequate consideration for such shares. The consideration ($1,500,000) complies with the 10-to-1 reserve rule based on the $15,000,000 annualized premiums attributed to ATRIO members in Josephine County.
( c) OHMS did not and will not borrow any funds for the purpose of purchasing the Series A Voting Stock of ATRIO.
ITEM S. FUTURE PLANS OF INSURER
At this time, A TRIO has no current plans or proposals to declare an extraordinary dividend, liquidate, sell its assets, effectuate a merger, or make any other material changes to its business operations, corporate structure, or management.
ITEM 6. VOTING SECURITIES TO BE ACQUIRED
The Articles oflncorporation of ATRIO currently "authorize" the issuance of 50,000,000 shares of stock, which consists of (i) 1,000,000 shares of Common Stock (no voting rights), and (ii) 49,000,000 shares of Preferred Stock, which consists of3,000 shares of Series
A Preferred Stock (full voting rights) and 45,997,000 shares of Series B Preferred Stock (limited voting rights).
The holders of the Series A Preferred Stock have exclusive voting rights, except that A TRIO cannot take any of the following actions without first obtaining the approval (by vote or written consent) of the holders of 100% of the outstanding shares of the Series A Preferred Stock and Series B Preferred Stock: change the rights, preferences, or privileges of Preferred Stock; increase or decrease the number of shares of Preferred Stock; create any class or series of stock with voting rights or with dividend or liquidation preferences equal to or senior to Preferred Stock; pay any dividends on or redeem any shares of, Preferred Stock; merge, consolidate, or sell substantially all of its properties or assets; amend its Articles of Incorporation or Bylaws; or affect any stock split, stock dividend, reorganization, or reclassification.
Applicant will purchase 500 shares of Series A Preferred Stock pursuant to the terms of the SP A as identified under Item 1.
ITEM 7. OWNERSHIP OF VOTING SECURITIES
OHMS will own 500 shares of Series A Preferred Stock.
ITEM 8. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO VOTING SECURITIES OF THE INSURER
The current shareholders of A TRIO have entered into an Amended and Restated Shareholder Voting and Share Transfer Agreement (the "Shareholder Agreement"). A copy of the Shareholder Agreement has been submitted to DCBS. The Shareholder Agreement addresses, among other things, the voting of shares for the election of directors, restrictions on the transfer of shares, voluntary and involuntary "puts" of a shareholder's shares, and additional contributions to capital. OHMS will be required to sign the same as a condition to ATRIO closing on the sale of the Series A Voting Stock. As provided in the Shareholder Agreement, OHMS will, after closing, have the right to designate three candidates to ATRIO's Board of Directors, and each ATRIO shareholder agrees to vote all of its shares to elect the three candidates designated by OHMS, provided, however, OHMS must designate its President or other chief executive officer as one of its candidates and at least one candidate that satisfies the requirements for public directors under ORS 750.015.
ITEM 9. RECENT PURCHASES OF VOTING SECURITIES
Not Applicable.
ITEM 10. RECENT RECOMMENDATIONS TO PURCHASE
Not Applicable
ITEM 11. AGREEMENTS WITH BROKER-DEALERS
Not Applicable.
ITEM 12. FINANCIAL STATEMENTS AND EXHIBITS
Attached are:
(a) Appendix B -Financial Information for ATRIO: 1. Five-Year Financial Projections 2. 2014 Financial Statements - on file with DCBS and incorporated herein by this
reference 3. 2013 Financial Statements-on file with DCBS and incorporated herein by this
reference 4. 2012 Financial Statements- on file with DCBS and incorporated herein by this
reference
ATRIO's 2015 Audited Financial Statements were not available at the time of this filing. OHMS anticipates a copy will be filed with ATRIO's Form B filing, or submitted at a later date to comply with its reporting requirements.
(b) Appendix C - Financial Information for OHMS 1. 2014 Financial Statements 2. 2013 Financial Statements 3. 2012 Financial Statements 4. 2011 Financial Statements 5. 2010 Financial Statements
At the time of this filing, OHMS's 2015 Audited Financial Statements were not available. OHMS anticipates that it will be able to forward a copy to DCBS by June 30, 2016.
( c) Annual Reports to the Stockholders 1. ATRIO's annual reports to its stockholders are on file with DCBS and incorporated
herein by this reference. 2. OHMS's financial statements as provided in Appendix C attached hereto.
ITEM 13. AGREEMENT REQUIREMENTS FOR ENTERPRISE RISK MANAGEMENT
Applicant will provide, to the best of its knowledge and belief, the information required by Form F within 15 days after the end of the month in which the acquisition of control occurs.
ITEM 14. SIGNATURE AND CERTIFICATION
Signature and certification on following page.
SIGNATURE
Pursuant to the requirements of ORS 732.517 to 732.592 Grants Pass Management Service, Inc., dba Oregon Health Management Services has caused this application to be duly signed on its behalf in the City of Grants Pass and State of Oregon on the~day of February, 2016.
Oregon Health Management Services
BY: fr~°"" ,(jl4 o Jene Dalke, CEO
jf,gnat OfOfficer)
_/1 ($ll2_1!!!!£,__b_f}J2JJ._ ,,,:_ __ M.151£p .,.-¥.? __ _ (Title)
CERTIFICATION
The undersigned deposes and says that the undersigned deponent has duly executed the attached application dated t.Way of February, 2016, for and on behalf of Grants Pass Management Services, Inc. dba Oregon Health Management Services; that the deponent is the CEO of such company and that the deponent is authorized to execute and file the instrument. Deponent further says that the deponent is familiar with tlie instrument and the contents thereof, and that tl1e facts therein set forth are true to tl1e best of the deponent's knowledge, information and belief.
~/)?-< /fd ---/ RO)TleeDalke
Grants Pass Management Services, Inc. dba
Oregon Health Management Services (OHMS) Organizational Chart
Grants Pass Management Services, Inc dba
Oregon Health Management Services (OHMS)
Oregon Domestic Business Corporation
PrimaryHealth of Josephine County, LLC
Oregon Limited Liability Company
Sole Member: Grants Pass Management Services, Inc.
Exhibit A-Organizational Chart of Applicant
Mc1nbership
MA- PPO 120,867 142,260 153,641 165,933 179,207 193,544 MA-SNP 61,852 72,800 78,624 84,914 91,707 99,043 Commercial 3,154 27,375 34,219 42,773 53,467 66,833 Self Funded 3,378 3,276 3,407 3,543 3,685 3,832
Total Premium Membership 189,251 245,711 269,891 297,163 328,066 363,253
Premium Revenue
MA· PPO 94,190,763 109,892, 102 121,769,241 136,968,818 150,884,850 166,214,751 MA-SNP 79,393,815 90,875,335 98, 145,362 109,036,587 120,114,704 132,318,358 Commercial 1,098,761 9,649,646 12,665,161 16,623,023 21,817,718 28,635,755 Self Funded 222,509 282,514 299,690 317,912 337,241 357,745
Total Premium Revenue 174,905,848 210j699,598 232,879,454 262,946,340 293, 154,513 327,526,609
Other Income
Interest Income 76,294 110,000 140,000 170,000 200,000 240,000 Investment Inco1ne 1,725,844 636,364 655,455 675,118 695,372 716,233
Total Other Income 1,802,138 746,364 795,455 845,118 895,372 956,233
Total Revenue 176,707,987 211,445,961 233,674,909 263,791,458 294,049,885 328,482,842
Health Care Costs 148 212,287 178,932,957 197,623,945 223, 194,952 248,905,475 278, 176,285
Gross Margin 28,495,700 32,513,005 36,050,964 40,596,506 45,144,410 50,306,556
Administrative Costs
SAC Fees 3,276,538 3,443,113 3,732,410 4,021,200 4,313,287 4,647,101 General and Administrative Costs
Fixed 9,251,896 11,114,260 11,447,688 11,791,118 12,144,852 12,509,198 Variable 6,911,428 8,895,658 10,043,181 11,363,059 12,887,203 14,654,716 Total General and Administrative 16,163,323 20,009,918 21,490,869 23, 154, 178 25,032,055 27,163,914 Total Administrative Costs 19,439,861 23,453,031 25,223,279 27, 175,378 29,345,342 31,811,014
Net Income Before Taxes 9,055,838 9,059,973 10,827,685 13,421,128 15,799,068 18,495,542
Federal and State Taxes 3,524,192 3,542,525 4,222,797 5,234,240 6,161,637 7,213,261 ACA Tax 2,354,340 2,416,271 3,023,470 4,032,905 4,689,282 5,885,193
Total Taxes 5,878,531 5,958,796 7,246,267 9,267,145 I 0,850,919 13,098,454
Net Income (Loss) 3,177,307 3,101,177 3,581,418 4,153,983 4,948,149 5,397,087
Costs as ll 0/o of Revenue
MLR 84.74% 84.92%.1 84.86o/o 84.88% 84.91% 84.93%) SAC FEES l .87o/o l .63o/o 1.60% 1.53% l.47% 1.42% G&A Expense 9.24% 9.50% 9.23% 8.81% 8.54% 8.29% Net Income before taxes 5.12% 4.28% 4.63% 5.09% 5,37% 5.63%
Premium Revenue
MA· PPO 779.29 772.47 792.56 825.45 841.96 858.80 MA - SNP 1,283.61 1,248.29 1,248.29 1,284.09 1,309.77 1,335.96 Commercial 348.37 352.50 370.12 388.63 408.06 428.46 Self Funded 65.87 86.24 87.96 89.72 91.52 93.35
Tolal Premium Revenue 924.20 857.51 862.87 884.86 893.58 901.65
Appendix B
Otl1er Income Interest Income 0.40 0.45 0.52 0.57 0.61 0.66 Investment Incotne 9.12 2.59 2.43 2.27 2.12 1.97
Total Other Income 9.52 3 04 2.95 2.84 2.73 2.63
Toh1l Revenue 933.72 860.55 865.81 887.70 896.31 904.28
Health Care Costs 783.15 728.22 732.24 751.09 758.71 765.79
Gross Margin 150.57 132.32 133.58 136.61 137.61 138.49
Administrative Costs SAC Fees 17.31 14.01 13.83 13.53 13.15 12.79 General and Administrative Costs
Fixed 48.89 45.23 42.42 39.68 37.02 34.44 Variable 36.52 36.20 37.21 38.24 39.28 40.34 Total General and Administrative 85.41 81.44 79.63 77.92 76.30 74.78 Total Administrative Costs 102.72 95.45 93.46 91.45 89.45 87.57
Net Income Before Taxes 47.85 36.87 40.12 45.16 48.16 50.92
Federal and State Taxes 18.62 14.42 15.65 17.61 18.78 19.86 ACA Tax 12.44 9.83 11.20 13.57 14.29 16.20
Total Taxes 31.06 24.25 26.85 31.19 3308 36.06
Net Income (Loss) 16.79 12.62 13.27 13.98 15.08 14.86
Appendix B
Membership MA-PPO 120,867 142,260 153,641 165,933 179,207 193,544 MA-SNP 61,852 72,800 78 624 84,914 91,707 99,043
Total Premiun1 Membership 182,719 215,060 232,265 250,846 270,914 292,587
Premium Revenue MA-PPO 94,190,763 109,892,102 121,769,241 136,968,818 150,884,850 166,214,751 MA-SNP 79,393,815 90,875,335 98,145,362 109,036,587 120,114,704 132,318,358
Total Premium Revenue 173,584,578 200,767,438 219,914,603 246,005,405 270,999,554 298,533,109
Other Income Interest Income 76,294 110,000 140,000 170,000 200,000 240,000 lnvesllnent income 1,725,844 636,364 655,455 675,118 695,372 716,233
Total Other Income 1,802,138 746,364 795,455 845,118 895,372 956,233
Total Revenue 175,386,716 201,513,801 220,710,057 246,850,523 271,894,926 299,489,342
llealth Care Costs 147 026 395 170411401 186 663 515 208,809 388 230 024 421 253 394 903
Gross Margin 28,360,321 31,102,400 34,046,543 38,041,135 41,870,504 46,094,439
Administrative Costs SAC Fees 3,249,962 3,345,626 3,593,093 3,838,347 4,073,292 4,332,107 General and Administrative Costs Fixed 8,934,063 10,749,219 11,071,696 11,403,846 11,745,962 12,098,341 Variable 6,650 740 7,924 158 8814,834 9,805 621 10 907,773 12,133,807 Total General and Administrative 15,584,803 18,673,377 19,886,529 21,209,468 22,653,735 24,232,147 Total Administrative Costs 18,834,764 22,019,003 23,479,623 25,047,814 26,727,027 28,564,254
Net Inco1ne Before Taxes 9,525,556 9,083,397 10,566,920 12,993,321 15,143,478 17,530,184
Pcdcral and State Taxes 3,524,192 3,542,525 4,121,099 5,067,395 5,905,956 6,836,772 ACA Tax 2,354,340 2,416,271 2,818,656 3,761140 4,293,638 5,309,967
Total Taxes 5,878,531 5,958,796 6,939,755 8,828,535 10,199,595 12,146,739
Net Income (Loss) 3,647,025 3,124,601 3,627,165 4,164,786 4,943,883 5,383,445
MLR 84.70% 84.88% 84.88% 84.88% 84.88% 84.88o/o SAC FEES l.87% 1.67% 1.63% 1.56%1 1.50% I .45o/o Net Income before taxes 5.49% 4.52%1 4.81% 5.28% 5.59% 5.87%
Premium Revenue MA-PPO 779 772 793 825 842 859 MA-SNP 1,284 1,248 1,248 1,284 1,310 1,336
Tola! Prcmillln Revenue 950 934 947 981 1,000 1,020
Premium Revenue MA-PPO 779.29 772.47 792.56 825.45 841.96 858.80 MA-SNP 1,283.61 1,248.29 1,248.29 1,284.09 1,309.77 1,335.96
Total Premiun1 Revenue 950.01 933.54 946.83 980.70 1,000.32 1,020.32
Other Income Interest Income 0.42 0.51 0.60 0.68 0.74 0.82 Investment Income 9.45 2.96 2.82 2.69 2.57 2.45
Total Other Income 9.86 3.47 3.42 3.37 3.31 3.27
Total Revenue 959.87 937.01 950.25 984.07 1,003.62 1,023.59
Health Care Costs 804.66 792.39 803.67 832.42 849.07 866.05
Appendix B
Gross Margin 155.21 144.62 146.58 151.65 154.55 157.54
Administrative Costs SAC Fees 17.79 15.56 15.47 15.30 15.04 14.81 General and Administrative Cosls Fixed 48.90 49.98 47.67 45.46 43.36 41.35 Variable 36.40 36.85 37.95 39.09 40.26 41.47
Total General and Ad1ninistrative 85.29 86.83 85.62 84.55 83.62 82.82 Total Administrative Costs 103.08 102.39 101.09 99.85 98.66 97.63
Net Income Before Taxes 52.13 42.24 45.50 51.80 55.90 59.91
Federal and State Taxes 19.29 16.47 17.74 20.20 21.80 23.37 ACATax 12.89 l l.24 12.14 14.99 15.85 18.15
Tolal Taxes 32.17 27.71 29.88 35.19 37.65 41.5 l
Net lnco1ne (Loss) 19.96 14.53 15.62 16.60 18.25 18.40
Appendix B
Membership Commercial 3,154 27,375 34,219 42,773 53,467 66,833 Self Funded 3,378 3,276 3,407 3,543 3,685 3,832
Total Premium Membership 6,532 30,651 37,626 46,317 57,152 70,666
Premium Revenue Commercial 1,098,761 9,649,646 12,665,161 16,623,023 21,817,718 28,635,755 Self- Funded 222,509 282,514 299,690 317,912 337,241 357,745
Total Premium Revenue 1,321,271 9,932,160 12,964,851 16,940,935 22,154,959 28,993,500
Other Income Interest Income Investment Income
Total Other Income
Total Revenue 1,321,271 9,932, 160 12,964,851 16,940,935 22,154,959 28,993,500
Health Care Costs 1,185,892 8,521,555 10,960,430 14,385,564 18,881,053 24,781,383
Gross Margin 135,379 1,410,604 2,004,421 2,555,371 3,273,906 4,212,118
Administrative Costs SAC Fees 26,577 97,487 139,317 182,853 239,995 314,993 General and Administrative Costs Fixed 317,833 365,041 375,992 387,272 398,890 410,857 Variable 260,687 971,500 t,228,347 1,557,438 1,979,430 2,520,910
Total General and Administrative 578,520 1,336,541 1,604,339 1,944,710 2,378,320 2,931,767 Total Administrative Costs 605,097 1,434,028 1,743,656 2,127,563 2,618,315 3,246,760
Net Income Before Taxes (469,718) (23,424) 260,765 427,807 655,590 965,358
Federal and Stale Taxes 101,698 166,845 255,680 376,489 ACATax 204,813 271,765 395,644 575,226
Total Taxes 306,512 438,610 651,324 951,715
Net Income (Loss) (469,718) (23,424) (45,747) (10,803) 4,266 13,642
MLR (Commercial only) 107.93% 88.3lo/o 86,54% 86.54'% 86.54% 86.54% SAC FEES 2.01% 0.98o/o 1.07% 1.08% 1.08% 1.09% Net Income before taxes -35.55% ·0,24% 2.01% 2.53% 2.96% 3.33%
Premium Revenue Commercial 348.37 352.50 370.12 388.63 40806 428.46 Self- Funded 65.87 86.24 87.96 89.72 91.52 93.35
Total Premium Revenue 202.28 324.04 344.57 365.76 387.65 410.29
Health Care Costs 181.55 278.02 291.30 310.59 330.37 350,68
Gross Margin 20.73 46.02 53.27 55.17 57.28 59.61
Administrative Costs SAC Fees 4.07 3.18 3.70 3.95 4.20 4.46 General and Administrative Costs Fixed 48.66 11.91 9.99 8.36 6.98 5,81 Variable 39.91 31.70 32.65 33.63 34.63 35.67 Total General and Administrative 88.57 43.61 42.64 41.99 41.61 41.49 Total Administrative Costs 92.64 46.79 46.34 45.94 45.81 45.95
Net Income Before Taxes (71.91) (0.76) 6.93 9.24 11.47 13,66
Federal and State Taxes 2.70 3.60 4.47 5.33 ACATax 5.44 5.87 6.92 8,14
Total Taxes 815 9.47 1140 13.47
Net Income (Loss) (71.91) (0,76) (1.22) (0.23) 0,07 0.19
Appendix B
GRANTS PASS CLINIC 401(k) & PROFIT SHARING PLAN
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
For the Years Ended December 31, 2014 and 2013
Appendix C.1
l
J
l
J
I
I I
J I
GRANTS PASS CLINIC 401(k} & PROFIT SHARING PLAN FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
For the Years Ended December31, 2014 and 2013
TABLE OF CONTENTS
Independent Auditor's Report
Financial Statements:
Statements of Net Assets Available for Benefits
Statements of Changes in Net Assets Available for Benefits
Notes to Financial Statements
Supplemental Schedule:
Schedule of Assets Held for Investment Purposes - Schedule H, Line 4i
Page
1 - 2
3
4
5-12
13
Appendix C.1
INDEPENDENT AUDITOR'S REPORT
To the Administrators Grants Pass Clinic 401 (k) & Profit Sharing Plan Grants Pass, Oregon
Report on the Financial Statements
We were engaged to audit the accompanying financial statements of Grants Pass Clinic 401 (I<) & Profit Sharing Plan, which comprise the statements of nei assets available for benefits as of December 31, 2014 and 2013, and the related statements of changes in net assets available for benefits for the years then ended, and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to expres.s an opinion on these financial statements based on conducting the audits in accordance with auditing standards generally aocepted 1n the United States of America. Because of the matter described in the Basis for Dlsdalmer of Opinion paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.
Basis for Disclaimer of Opinion
As permitted by 29 CFR 2520.103·8 of the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974, the plan administrator Instructed us not to perform, and we did not perform, any auditing procedures with respect to the Information summarized In Note 3, which was certified by Wells Fargo Bank, the trustee of the Plan, except for comparing the information with the related Information Included in the financial statements. We have been informed by the plan administrator that the trustee holds the Plan's investment assets and executes investment transactions. The plan administrator has obfafned a certification from the trustee as of and for the yeoirs ended December 31, 2014 and 2013, tl1at the information provided to the plan administrator by the trustee Is complete and accurate.
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BEND 300 SW Colu1nbia Street Suite 201 Behd, OR 97102
p/Jone (51,1) 382-·3590 fan (541) 382-3587
£Ud tN ~ li3l West 11th Avenue Eugene, OR 97401
phone (541) 687·,2320 fa!< (54i) MlS-'0950
HJU.5$0R0 5635 NE Elam Youne Pkwy. Suite iOO Hillsborn, OR 97124
phone (503) 648-0521 fan (503) 648•-2692
Si!hrdtle~ -01f11ted U1rou[l:h l~t Glubal Cap!ta\ Corp., Menibt!r FINRA,SIP<:, Jn~~tm1mt11dvl~ory ~l!IVl(c; orfornd lhro1lgh Mt U\Qb.;it A.<lvlsor~,ltir.
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Disclaimer of Opinion
Because of the significance of the matter described in the Basis for Disclaimer of Opinion paragraph, we have not been able to obtain sufficient, appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on these financial statements.
Other Matter
The supplemental schedule of assets held for investment purposes as of December 31, 2014, is required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 and is presented for the purpose of additional analysis and is not a required part of the financial statements. Because of the significance of the matter described In the Basis for Disclaimer of Opinion paragraph, we do not express an opinion on the supplemental schedule referred to above.
Report on Form and Content in Compliance With DOL Rules and Regulations
The form and content of the information included in the financial statements and supplemental schedule, other than that derived from the information certified by the trustee, have been audited by us in accordance with auditing standards generally accepted in the United States of America and, in our opinion, are presented in compliance with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974.
rt-~.P.C.
Jones & Roth, P.C. Bend, Oregon August 27, 2015
- 2 - Appendix C.1
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FINANCIAL STATEMENTS
Appendix C.1
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GRANTS PASS CLINIC 401(k) & PROFIT SHARING PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 2014 and 2013
2014
Assets
Investments, at fair value Registered investment companies $ 18,090,901 Common/collective trusts 2,368,765
Total Investments, at fair value 20,459,666
Receivables Notes receivable from participants 97,861 Employer contributions 387,673 Participant deferrals 36,039
Total receivables 521,573
Net assets available for benefits at fair value 20,981,239
Adjustment from fair value to contract value for fully benefit-responsive investment contract (32,705)
Net assets available for benefits $ 20,948,534
The accompanying notes are an integral pait of these statements.
- 3 -
2013
$ 18,038, 195 2,471,068
20,509,263
209,004 313,959
24,747
547,710
21,056,973
(19,612)
$ 21,037,361
Appendix C.1
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The accompanying notes are an integral part of these statements.
Appendix C.1
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1. Plan Description
GRANTS PASS CLINIC 401(k) & PROFIT SHARING PLAN NOTES TO FINANCIAL STATEMENTS
The following description of the Grants Pass Clinic 401 (k) & Profit Sharing Plan (the Plan) provides only general information. Participants should refer to the Plan Agreement for a complete description of the Plan's provisions.
General
The Plan is a defined contribution plan covering all employees of Grants Pass Clinic, LLP and Grants Pass Management Services, Inc. dba Oregon Health Management Services (the Employers). Employees become eligible to participate in the Plan upon completion of one year of service, and begin participation on the next plan entry date (currently January 1 or July 1) following eligibility. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended .
Contributions
Participants of the Plan can elect to make tax-deferred contributions that are partially matched by the Employers, and are eligible for profit sharing contributions if they are employed at the end of the Plan year and have completed at least 1,000 hours of service. Participants direct the Investment of their contributions into various investment options offered through the Plan trustee. Participants may elect to make contributions up to the statutory limit, and the Employers make a matching contribution of 50 percent of the first 6 percent of participants' compensation contributed to the Plan. The Employers may also make a discretionary profit-sharing contribution from their net profits for the year, subject to certain top-heavy plan rules and based on an integrated formula with the Social Security wage base. For the years ended December 31, 2014 and 2013, the Employers made profit-sharing contributions of $374,781 and $297,720, respectively.
Participant Accounts
Each participant's account is credited with the participant's and Employers' contribution, the earnings and appreciation or depreciation of the investments allocated to his or her account, and is charged with an allocation of administrative expenses and fees. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account.
Vesting
Participants are vested immediately In their elective deferrals and employer matching contributions, plus earnings thereon. The Employers' profit sharing contributions are subject to a graded vesting schedule, and participants become 100 percent vested after six years. The portion of an individual's account that is not vested at the time an employee terminates his or her employment is forfeited.
- 5 -Appendix C.1
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GRANTS PASS CLINIC 401(k) & PROFIT SHARING PLAN NOTES TO FINANCIAL STATEMENTS
1. Plan Description, continued
Notes Receivable from Participants
The Plan allows employed participants to obtain loans in an amount not lo exceed the lesser of $50,000 or 50 percent of their vested account balance, reduced by the highest outstanding loan balance during the prior twelve-month period. Loan transactions are treated as transfers from the investment funds to the participant's loan fund. Loan terms cannot exceed five years, unless the purpose of such loan was to acquire the principal residence of the participant. The loans are secured by the balance in the participant's vested account and ~ear interest at a reasonable rate commensurate with prevailing interest rates. Principal and interest are paid ratably through payroll deductions.
Payment of Benefits
In the event of termination, death, disability, or retirement, a participant may elect to receive a lumpsum payment equal to the value of the participant's vested Interest in his or her account.
Hardship Withdrawals
If a participant has an immediate and heavy financial need as defined by the Plan, hardship withdrawals are allowed in an amount not in excess of the value of the participant's deferral contributions, excluding earnings. In the event of a hardship withdrawal, the participant's elective deferral contributions, if any, will be automatically suspended and the participant will be ineligible to resume making such contributions for six months.
Forfeited Accounts
A forfeiture of the unvested portion of a participant's account occurs in the Plan year that a participant receives a distribution of his or her entire vested account or, if no distribution is made, after five consecutive one-year breaks in service. Forfeitures are retained in the Plan and used to reduce future employer contributions. During 2014 and 2013, $6,811 and $8,245 of forfeitures, respectively, were used to reduce employer contributions.
2, Summary of Significant Accounting Policies
Basis of Accounting
The financial statements of the Plan are prepared on the accrual basis of accounting.
Investment contracts held by a defined contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount pa1iicipants would receive if they were to initiate permitted transactions under the terms of the Plan. The statements of net assets available for benefits present the fair value of the Investment contracts as well as the adjustment of the fully benefit-responsive investment contracts from fair value to contract value. The statements of changes in net assets available for benefits are prepared on a contract value basis.
- 6 -Appendix C.1
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GRANTS PASS CLINIC 401(k) & PROFIT SHARING PLAN NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies, continued
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
The Plan's investments are reported at fair value. Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. See Note 9 for a discussion of fair value measurements,
Interest and dividend income are recorded on the accrual basis, Purchases and sales of securities are recorded on a trade-date basis. Net change in fair value of investments includes the Plan's gains and losses on investments bought and sold as well as held during the year.
Payment of Benefits
Benefits are recorded when paid.
Administrative Expenses and Fees
Certain administrative expenses of the Plan have been paid directly by the Employers and are excluded from these financial statements.
Notes Receivable from Participants
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Interest income is recorded on the accrual basis. No allowance for credit losses has been recorded as of December 31, 2014 or 2013. If a participant ceases to make loan repayments and the Plan Administrator deems the participant loan to be in default, the participant loan balance is reduced and a benefit payment is recorded,
Other Income
During 2013, the Plan Administrator became aware that a paiiicipant's requested investment directions were Implemented incorrectly, and the necessary corrections were not made in a timely manner. As a result, the custodian made a corrective contribution of lost earnings into the Plan totaling $56,087. This is reflected as other income on the accompanying 2013 statement of changes in net assets.
- 7 -Appendix C.1
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GRANTS PASS CLINIC 401(k) & PROFIT SHARING PLAN NOTES TO FINANCIAL STATEMENTS
3. Information Certified By the Plan's Trustee
The Plan Administrator has elected the method of annual reporting compliance permitted by 29 CFR 2520.103-8 of the Department of Labor's Rules and Regulations for Reporting and Disclosure under ERISA Accordingly, Wells Fargo Bank, acting as trustee for the Plan, has certified that the following data included in the accompanying financial statements and supplemental schedule is complete and accurate as of and for the years ended December 31:
Investments: Registered investment companies, at fair value Common/collective trusts, at contract value
Notes receivable from participants
Net realized and unrealized investment gains: Registered investment companies, at fair value Common/collective trusts, at contract value
Dividend income Interest income on notes receivable from participants
2014
$ 18,090,901 2,336,060
97,861
(303,213) 32,059
1,278,266 8,471
2013
$ 18,038, 195 2,451,456
209,004
1,426,924 33,798
1, 176,083 8,013
The trustee's annual report was prepared primarily on a cash basis. The accompanying financial statements were prepared on an accrual basis. Accordingly, certain accrual adjustments were made to the information provided by the trustee.
4. Tax Status
Effective January 1, 2006, the Plan was restated to a prototype plan through execution of an adoption agreement. The prototype plan adopted is the Wachovia Bank National Association Defined Contribution Master Plan & Trust Agreement. Wells Fargo Bank (formerly Wachovia Bank), the sponsor of the prototype plan, has received an opinion letter from the Internal Revenue Service dated March 31, 2008, that the adoption agreement and basic plan document satisfy Internal Revenue Code Section 401 (IRC). The Plan has been amended since receiving the determination letter. However, the Plan Administrator believes that the Plan is currently designed and being operated in compliance with the applicable requirements of the IRC.
U.S. GAAP requires Plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the applicable taxing authorities. The Plan's tax filings are subject to examination generally for three years after they are filed .
- 8 - Appendix C.1
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5. Investments
GRANTS PASS CLINIC 401(k) & PROFIT SHARING PLAN NOTES TO FINANCIAL STATEMENTS
The following investments represent 5 percent or more of the Plan's net assets at December 31 for either year presented:
American Mutual Fund Goldman Sachs Mid Cap Value Fund Franklin Templeton Moderate Target Fund Franklin Strategic Income Fund Lord Abbe!! Research Small Cap Value American Balanced Fund Wells Fargo Stable Return Fund Mainstay Large Cap Growth Fund Columbia Small Cap Index Fund Manning Napier Pro Blend Fund. PIMCO All Asset All Authority Fund PIMCO Total Return Fund
6. Plan Termination
2014
$ 1,262,217 $ 1,208,426
1,331, 706
1,197,116 2,368,765 1,769,875 1,398,919 1,937,088 1,207,752 1,829,775
2013
1,446,469 1,461,870 1,598,743 1,254, 164 1,684, 117 1,343,832 2,471,068 1,514,544
2, 183,581
Although they have not expressed any intent to do so, the Employers have the right under the Plan to discontinue contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of full or partial Plan termination, affected participants would become 100 percent vested in their Employer contributions.
7. Related Party and Party in Interest Transactions
Certain plan investments are shares of a common/collective trust fund managed by an affiliate of Wells Fargo Bank, the trustee of the Plan; therefore, these transactions qualify as party in interest transactions. During the years ended December 31, 2014 and 2013, $12,655 and $11,081 of trustee fees, respectively, were paid to Wells Fargo Bank and $43,974 and $47,085 of advisory fees, respectively, were paid to Wells Fargo Advisors, LLC from the Plan.
8. Risks and Uncertainties
The Plan invests In various investment securities. Investment.securities are exposed ta various risks such as interest rate, market, and credit risks. Due ta the level of risk associated with certain investment securities, it Is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants' account balances and the amounts reported in the statement of net assets available far benefits.
-9-Appendix C.1
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GRANTS PASS CLINIC 401(k) & PROFIT SHARING PLAN NOTES TO FINANCIAL STATEMENTS
9. Fair Value Measurements
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs lo valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under professional standards are described below:
Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.
Level 2: Inputs to the valuation methodology Include: • Quoted prices for similar assets or liabilities in active markets; • Quoted prices for identical or similar assets or liabilities in inactive markets; • Inputs other than quoted prices that are observable far the asset or liability; • Inputs that are derived principally from or corroborated by observable market
data by correlation or other means.
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable far substantially the full term of the asset or liability.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The asset's or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to their fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used far assets measured at fair value . There have been no changes in the methodologies used at December 31, 2014 and 2013.
Registered Investment Companies: Valued at the net asset value (NAV) of shares held by the Plan at year end. All mutual funds held by the Plan are open.ended mutual funds that are registered with the SEC and are deemed to be actively traded.
Common!Col/ectlve Trusts: Valued at the fair value of the underlying contracts held by the fund, as determined by analysis of interest rates, maturities, and other observable inputs.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
"10" Appendix C.1
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GRANTS PASS CLINIC 401(k) & PROFIT SHARING PLAN NOTES TO FINANCIAL STATEMENTS
9. Fair Value Measurements, continued
The following table sets forth by level, within the fair value hierarchy, the Plan's investments at fair value as of December 31, 2014 and 2013.
Investments at Fair Value 9s of December 31, 2014 Level 1 Level2 Total
Registered investment companies: Fixed income funds $ 5,161,515 $ $ 5,161,515 Growth funds 5,587,700 5,587,700 Balanced funds 3,140,868 3, 140,868 Value funds 2,470,643 2,470,643 Other mutual funds 1,730,175 1,730,175
Common/collective trusts 2,368,765 2 368 765
Total investments, at fair value $ 18.090.901 $ 2,368.765 i.__20,459,666
Investments at Fair Value as of December 31, 2013 Level 1 Level2 Total
Registered investment companies: Fixed income funds $ 4,294,082 $ $ 4,294,082 Target funds 3,085,853 3,085,853 Growth funds 2,874, 116 2,874,116 Balanced funds 1,343,832 1,343,832 Value funds 4,592,456 4,592,456 Other mutual funds 1,847,856 1,847,856
Common/collective trusts 2 471 068 2 471 068
Total investments, at fair value $ j8 038 Hl5 Si 2,4ZJ ,068 fil 20..BQ.9~§3
10. Reconciliation of Financial Statements to Schedule Hof Form 5500
These financial statements have been prepared using the accrual basis of accounting. Schedule H of Form 5500 presents the net assets and activity of the Plan on the cash basis. The following is a reconciliation of net assets available for benefits per the financial statements for the years ended December 31, 2014 and 2013, to Schedule Hof Form 5500:
Net assets available for benefits per the financial statements $ Contributions receivable, employers Contributions receivable, participants
2014
20,948,534 $ (387,673)
(36,039)
2013
21,037,361 (313,959)
(24,747)
Net assets available for benefits per Schedule H of Form 5500 $ 20 524 822 ~2-Q,698 655
- 11 -Appendix C.1
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GRANTS PASS CLINIC 401(k) & PROFIT SHARING PLAN NOTES TO FINANCIAL STATEMENTS
10. Reconciliation of Financial Statements to Schedule Hof Form 5500
The following is a reconciliation of contributions per the financial statements for the year ended December 31, 2014, to Schedule Hof Form 5500:
Contributions per the financial statements
Contributions paid in 2014 for 2013: Employers Participant deferrals
Less: 2014 contributions paid In 2015: Employers
Participant deferrals
Contributions per Schedule H of Form 5500
$
$
1,468,600
313,959 24,747
(387,673)
(36,039)
1.383 59'!
The following is a reconciliation of contributions per the financial statements for the year ended December 31, 2013, to Schedule H of Form 5500:
Contributions per the financial statements
Contributions paid in 2013 for 2012: Employers Participant deferrals
Less: 2013 contributions paid in 2014: Employers Participant deferrals
Contributions per Schedule H of Form 5500
11. Subsequent Events
$
$
1,079,403
356,004 68,075
(313,959) (24,747)
1 164 776
Management evaluates events and transactions that occur after the statement of net assets available for benefits date as potential subsequent events. Management has performed this evaluation through the date of the independent auditor's report.
Appendix C.1
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SUPPLEMENTAL SCHEDULE
Appendix C.1
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GRANTS PASS CLINIC 401(k) & PROFIT SHARING PLAN SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES - Schedule H, Line 4i
December 31, 2014
Employer Identification Number: 93-0407781 Plan Number: 001
(c) Description of Investment
(b) Including Maturity Date, (e) Identity of Issuer, Borrower, Rate of Interest, Collateral, (d) Current
(a) Lessor, or Similar Party Maturity Value Cost Value
* Wells Fargo Stable Return Fund Common/Collective Trust ** $ 2,368,765 American Balanced Fund Mutual Fund ** 1,197,116 American Capital World Growth and Inc Fund Mutual Fund ** 653,230 American Europacific Growth Fund Mutual Fund .,. 744,463 American Mutual Fund 3 Mutual Fund ** 1,262,217 Dreyfus Bond Market Index Fund Mutual Fund ** 185,159 Franklin Strategic Income Fund Mutual Fund ** 1,331,706 Columbia Small Cap Index Fund Mutual Fund ** 1,398,919 Goldman Sachs Mid Cap Value Fund Mutual Fund ** 1,208,426 Invesco Real Estate Fund Mutual Fund ** 452,713 Jennison Natural Resources Fund Mutual Fund ** 405,563 MainStay Large Cap Growth Fund 1 Mutual Fund ** 1,769,875 PIMCO All Asset All Authority Inst Fund Mutual Fund ** 1,207,752 PIMCO Total Return Fund Mutual Fund ** 1,829,775 Manning Napier Pro Blend Exten Fund Mutual Fund ** 6,664 Manning Napiers Inc. Pro Blend MO Fund Mutual Fund ** 1,937,088 Manning Napier Pro Blend Max-S Fund Mutual Fund ** 1,021,213 Manning Napier Pro Blend Cons Fund Mutual Fund ** 607, 123
* Wells Fargo Advantage Index Fund Mutual Fund ** 871,901
Participant loans 4.25% Interest 97,861
$ 20,557,529
* This fund is managed by an affiliate of the trustee of the Plan, and therefore is a party in interest as defined by ERISA.
** Cost information may be omitted with respect to participant directed investments.
Appendix C.1
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OREGON HEAL TH MANAGEMENT SERVICES AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
For the Years Ended December 31, 2013 and 2012
Appendix C.2
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OREGON HEAL TH MANAGEMENT SERVICES AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
For the Years Ended December 31, 2013 and 2012
TABLE OF CONTENTS
Independent Auditor's Report
. Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Supplementary Information:
Consolidated Schedules of General and Administrative Expenses
1 - 2
3-4
5
6
7
8 -13
14
Appendix C.2
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INDEPENDENT AUDITOR'S REPORT
To the Board of Directors Oregon Health Management Services Grants Pass, Oregon
We have audited the accompanying consolidated financial statements of Oregon Health Management Services (an Oregon corporation) and subsidiary, which comprise the consolidated balance sheets as of December 31, 2013 and 2012, and the related consolidated statements of income, stookholders' equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
Management's Responsibility for the FinanclaJ Statements
Management Is re'Sponsible for the preparati.on and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted In th<:J United $tales of America; !his includes the design, lmp!ementa!fon, and maintenance of internal control relevant to the preparation and falr presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibllity
Our responsibility is to express an op.Inion on these consolidated financial statements based on· our audits, We conducted cur audits in accordance with auditing standards generally accepted in the United states of America. ThGse standards require that we plan and perform !he audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement ,
An audit involves performing procedures to obtain audit evk;lence about the amounts and disclosures in the consolidated financial statements, The procedures selected, depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers Internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate In the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the. reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
The Right People Beside You,
CPAs & Blmlhess Advisors Hetlrcrnent Pkt/1 Services r::;nanclal Advfsors
BEND 300SW Columbia Street suite 201
EOGfSNE -4J2 West 1.1th Avenue Eu_gene1 OR 971.01
pl1one {541) 687-2320
HILLSBORO 5635 NE Elam Young P!(Wy.
> jrcpa,c:om
Bend, OR 97702 phone {541) 382-3590
jmc [541) 382-3587 fax (541) 485-0960
Suite too Htllsboro, OR 97124
phone (503) 648-0521 fair (503) 6MP\l!ll9>l>C2 fit rrlnt~d on
100% PC 1atyd!d fJ~l)N
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Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Oregon Health Management Services and subsidiary as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Report on Supplementary Information
Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The supplementary information, as listed in the table of contents, is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all. material respects in relation to the consolidated financial statements as a whole.
~<+~\A...., P.c.. Jones & Roth, P.C. Eugene, Oregon August 1, 2014
- 2 -Appendix C,2
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CONSOLIDATED FINANCIAL STATEMENTS
Appendix C.2
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Current liabilities Medical claims payable Mental health claims payable Accounts payable Mental health capitation payable Transformation grant payable SNRG payable Income taxes payable Provider tax payable · Accrued wages and related taxes
Total current liabilities
Stockholders' equity
Liabilities and Stockholders' Equity
Class A common stock no par value; voting, 5,000 shares authorized, -0- issued and outstanding in 2013 and 2012
Class B common stock no par value; voting, 5,000 shares authorized, 180 shares issued and outstanding in 2013 and 2012
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
$
$
2013
1,295,274 57,000
334,827 593,897 148,774 438,519 434,005
191,087
3,493,383
18,000 2,317,503
2,335,503
$
5,828,886 $
2012
1,273,000 333,852 85,923
73,467 1,044
211,151
1,978 437
18,000 1, 102,095
1,120,095
3,098,532
The accompanying notes are an integral part of these consolidated statements.
-4- Appendix C.2
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OREGON HEALTH MANAGEMENT SERVICES AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2013 and 2012
2013 2012
Percent of Amount Revenue Amount
Revenue
Prepaid plan revenue $ 23,934, 165 96.9 $ 21,253,315 Grant revenue 225,002 0.9
Other contract services 533,081 2.2 520,503
Total revenue 24,692,248 100.0 21,773,818
Cost of services Claims expense 11,880,761 48.1 10,619,268 Capitation payments 7,164,917 29.0 5,274,812 Other 92,610 0.4 47,285
Total cost of services 19,138,288 77.5 15,941,365
Excess of revenue over cost of servk:es 5,553,960 22.5 5,832,453
General and administrative expenses 3,518,645 14.2 5,331,960
Operating Income 2,035,315 8.2 500,493
Other income Interest income 5,561 0.1 6,205
Income before taxes 2,040,876 8.3 506,698
Provision for (benefit from) income taxes Current 767,205 3.2 143,967 Deferred 22 263 0.1 53,616
Total provision for (benefit from) income taxes 789,468 3.3 197,583
Net income $ 1,251,408 5.1 !L 309,115 ··"""""""'
The accompanying notes are an integral part of these consolidated statements.
Percent of Revenue
97.6
2.4
100.0
48.8 24 .. 2
0.2
73.2
26.8
24.5
2.3
2.3
0.7 0.2
0.9
1.4
- 5 - Appendix C.2
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OREGON HEAL TH MANAGEMENT SERVICES AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2013 and 2012
Common Stock Common Stock Class A Class B Retained
Shares Amount Shares Amount Earnings
Balance, December 31, ·2011 $ 190 $ 19,000 $ 828,980
Net income 309,115
Dividends paid (36,000)
Stock issuance (10) (1,000)
Balance, December 31, 2012 180 18,000 1,102,095
Net income 1,251,408
Dividends paid (36,000)
Stock redemption ----Balance, December 31, 2013 $ 180 $ 18,000 $ 2,317,503
The accompanying notes are an integral part of these consolidated statements.
Total
$ 847,980
309, 115
(36,000)
(1,000)
1,120,095
1,251,408
(36,000)
$ 2,335,503
.. 6 ~ Appendix C.2
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OREGON HEAL TH MANAGEMENT SERVICES AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2013 and 2012
2013
Cash flows from operating activities Net income $ 1,251,408
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 69,898 Change In future income tax benefits and liabilities 22,263
(Increase) decrease in: Accounts receivable (312,249)
Transformation grant receivable (225,002)
Prepaid expenses (15,046)
Refundable income taxes Increase (decrease) in:
Medical claims payable 22,274
Mental health claims payable (276,852)
Accounts payable 248,904
Mental health capitation payable 593,897
Transformation grant payable 148,774
SNRG payable 438,519
Income taxes payable 360,538
Provider tax payable (1,044)
Accrued wages and related taxes (20,064)
Net cash provided by operating activities 2,:3.06,21!3.
Cash flows from Investing activities Increase in restricted cash
···-' (376,350)
Investment in PHJC (237,561) Purchases of equipment (50, 116)
Net cash used by investing activities (664,027)
Cash flows from financing activities Purchase (redemption) of stock Dividends paid (36,000)
Net cash used by financing activities (36,000)
Net Increase in cash and cash equivalents 1,606,191
Cash and cash equivalents, beginning of year 1,767,745
Cash and cash equivalents, end of year !._. 3,373,936
Supplemental cash flow Information Cash paid for income taxes $ 333,200
$
$
$
The accompanying notes are an integral part of these consolidated statements.
- 7 -
2012
309,115
156,211 53,616
(320,777)
32,664 37,521
(446,000) 333,852 (22,602)
73,467 (49,406) 28,427
186,088
(46,296)
(20,843)
67,1~
(1,000) {36,000)
(37,000)
81,949
1,685,796
1,767,745
15,000
Appendix C.2
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OREGON HEAL TH MANAGEMENT SERVICES AND SUBSIDIARY. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies
This summary of significant accounting policies is presented to assist in understanding the consolidated financial statements for Oregon Health Management Services (the Company) and subsidiary, PrimaryHealth of Josephine County, LLC. These accounting policies conform to accounting principles generally accepted in the United States of America.
Description of Operations
The Company was organized in the state of Oregon on October 24, 1995, and started operations May 1, 1996. The Company purchased PrimaryHealth of Josephine County, LLC from CareOregon on December 31, 2013. All significant intercompany activity and accounts have been eliminated in the accompanying consolidated financial statements.
PrimaryHealth of Josephine County, LLC is currently under contract with the State of Oregon Department of Human Services, Division of Medical Assistance Programs (DMAP) and Addictions and Mental Health Division (AMH) to provide prepaid medical, dental and mental health services In Josephine and Jackson Counties, Oregon. The service contract was renewed September 1, 2012 and expired December 31, 2013.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with the accrual basis of accounting whereby revenues are recognized when earned and expenses are recognized when an obligation is incurred.
Cash and Cash Equivalents
Management considers cash and cash equivalents to consist of cash deposits and short-term, highly liquid investments with remaining maturities of three months or less when acquired and are
I carried at cost, which approximates market value . . l
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Accounts Receivable
.Accounts receivable consists of amounts due under various counseling contracts and claim refunds. The Company does not require collateral or other security to support accounts receivable. No allowance has been recorded for uncollectible accounts as management considers all accounts to be coll.ectible. The Company does not add interest or finance charges to the outstanding receivables.
Furniture, Equipment, and Leasehold Improvements
Furniture, equipment, and leasehold improvem·ents are stated at cost. Leasehold improvements and replacements of furniture and equipment are capitalized. Maintenance and repairs are charged to current operations as incurred .. Depreciation of furniture, equipment, and leasehold improvements Is computed using the straight-line method over the estimated useful lives ranging from 5 to 15 years. Software is amortized over three years.
-8- Appendix C.2
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OREGON HEAL TH MANAGEMENT SERVICES AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies, continued
Medical Claims Payable
Claims incurred represent capitation and noncapitation payments for services rendered during the year. The medical claims payable liability is based on experience statistics related to the nature and volume of work performed. This estimated liability is periodically evaluated by management In order to maintain it at a level that is sufficient° to absorb probable incurred but not reported claims. Management's evaluation of the adequacy of the estimate is based on an analysis of c.laims paid after the balance sheet date and an actuarial review of historical claim experience.
Managed Care Organization Taxes Payable
Effective May 2004, DMAP implemented a 5.5 percent managed care tax on premiums paid to fullycapitated health plans. Taxes are payable quarterly and calculated based on premium collections during the quarter. Effective October 1, 2009, the rate was reduced to 1.0 percent. Tax payments are accrued monthly and are due 45 days after each quarter end. For 2013, the taxes were withheld and paid directly by CareOregon.
Income Taxes ·
Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due plus deferred taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes al)d the amounts used for income tax purposes. Future income tax benefits are reduced by a valuation allowance when, in the opinion of manag;;iment, it is more likely · than not that some portion or all the deferred tax assets will not be realized. Future income tax benefits and deferred tax liabilities are adjusted for the effects of changes in tax .laws and rates on the date of enactment.
The preparation of consolidated financial statements, in conformity with accounting principles generally accepted in the United States of America, requires the Company to report information regarding its exposure to various tax positions taken by the Company. The Company has determined whether any tax positions have met the recognition threshold and has measured the Company's exposure to those tax positions. Management believes that the Company has adequately addressed all relevant tax positions and that there are no unrecorded tax liabilities. Federal and state tax authorities generally have the right to examine and audit the previous three years of tax returns filed.
Revenue Recognition
Premiums and administration fees earned from capitation payments received from DMAP are recognized in the month In which they are earned.
Goodwill
Goodwill represents the excess of the cost of acquiring PrimaryHealth of Josephine County, LLC over the value of the net assets on December 31, 2013, the date of acquisition. Under generally accepted accounting principles, the carrying amount of goodwill is not amortized but is reduced if management determines that its implied fair value has been impaired.
Appendix C.2
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OREGON HEAL TH MANAGEMENT SERVICES AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies, continued
Special Needs Rate Group Payable
As part of the. Coordinated Care Organizab"on (CCO) transition of care, the Oregon Health Administration (OHA) moved certain high-cost members deemed to have life"threatening medical issues from the Open Card program to the CCOs. An inflated capitation rate was initially utilized by the OHA as sufficient historical data was not available to determine an actuarially sound capitation rate, with the intention of completing a reconciliation to actual data at a later time. Management has estimated the total liability utilizing actual expenses Incurred to date to determine an expected amount payable per member per month.
Reinsurance
In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsurance to its single reinsurer under excess coverage agreements. In addition, the Company is required to obtain certain reinsurance as a contractor of DMAP. These agreements call for the Company to cede reinsurance premiums to their reinsurer on a per member per month basis, in return, the reinsurer assumes 90 percent of the risk In excess of specified limits. Reinsurance agreements do not relieve the Company from Its obligation to providers. Amounts recoverable from the reinsurance policy are estimated in a manner consistent with the claim liability associated with the reinsurance policy. Reinsurance premiums and reinsurance recoveries are included in claims expense. Reinsurance premiums were $320, 768 and $254.327 in 2013 and 2012, respectively.
Use of Estimates
The preparation of consolidated financial statements, in conformity with generally accepted accounting principles of the United States of America, requires the Company make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The amounts estimated could differ from actual results. Significant estimates in these consolidated financial statements include the liability for medical claims incurred but not reported.
Restricted Cash
Restricted cash consists of a money market account at Umpqua Bank with \l balance of $995, 115 and $618,765 at December 31, 2013 and 2012, respectively. These funds are restricted as to their use and are held to satisfy a required reserve of DMAP for the Company to maintain status as a contractor.
- 10" Appendix C.2
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OREGON HEALTH MANAGEMENT SERVICES AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCiAL STATEMENTS
2. Commitments
The Company entered into an operating lease with a third-party for office space beginning on October 1, 2007. The lease agreement requires the Company to make minimum monthly rental payments of$3,908. The lease expires October 1, 2016.
Additionally, the Company entered into another operating lease with third-party for office space on December 1, 2013. The agreement required the. Company make minimum monthly rental payments of$1,300. The lease expires December 1, 2018.
The Company has also entered into various operating leases for office equipment that are set to expire between March 2015 and December 2018. The agreements require i;ninimum monthly payments of $626 and $756, respectively. ·
The future minimum lease payments are as follows:
Year Ending December 31,
2014 2015 2016 2017 2018
Thereafter
Total
$
$
79,076 72,815 59,841 24,673 23,373
259,778
Rent expense totaled $94,922 and $87,859 in 2013 and 2012, respectively.
3. Concentrations of Risk
The Company maintains its cash and investments In bank deposit accounts, which at times may exceed federally insured limits. The Company makes such investments with entities management believes to have high credit quality and has not incurred any losses in such accounts, and believes it is not exposed to any significant credit risk on cash and cash equivalents. At December 31, 2013 and 2012, the Company's deposits were in excess of federally Insured limits by $2,764,154 and $416,528, respectively. ·
The Company derived approximately 97 percent and 98 percent of its revenue from the contract with DMAP .in 2013 and 2012, respectively. Loss of the contract due to non-renewal or state legislative decisions to discontinue funding the program could materially affect the financial position of the Company. The contract is renewable on an annual basis effective January 1 with interim rate adjustments.
- 1 ·1 - Appendix C.2
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OREGON HEAL TH MANAGEMENT SERVICES AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Common Stock
5.
The Company has two classes of common stock: Class A and Class B. Class A common stock is no par value voting stock. There are 5,000 shares of Class A common stock authorized; none were Issued and outstanding at December 31, 2013 and 2012.
Class B common stock is no par value voting stock. There are 5,000 shares of Class B common stock authorized; 180 shares were issued and outstanding at December 31, 2013 and 2012.
Income Taxes
2013 2012 Net future income tax benefits consist of:
Temporary federal differences $ 11,317 $ 6,894 Temporary state differences 2 352 29 038
Total net future income tax benefits $ 13,669 m 35 932
The primary timing differences giving rise to future income tax benefits and liabilities are: • Medical claims and contractual withholding liabilities deducted for book purposes but
deferred to future years for income tax reporting purposes. • The difference between depreciation for tax purposes and the amount recorded for financial
reporting purposes. • Certain payroll related liabilities recognized earlier for financial reporting purposes than for
tax purposes. • Charitable contributions carried foiward. • Prepaid expenses.
Provision for (benefit from) income taxes consist of: Current income taxes - federal Current income taxes - state Future income tax benefits - federal Future income tax benefits - state
Total provision for (benefit from) income taxes
$
$
2013 2012
628,329 $ 128,967 138,876 15,000 17,721 35,689 4 542 17 927
789,468 l ___ Jkl:Z,583
6. Related Party Transactions
The Company entered into a month-to-month operating lease from Grants Pass Clinic, LLP for office space beginning on January 1, 2008. Grants Pass Clinic, LLP is owned 100 percent by the shareholders of the Company. Total payments were $16,200 for the years ended December 31, 2013 and 2012.
- 12 - Appendix C.2
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OREGON HEALTH MANAGEMENT SERVICES AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Related Party Transactions, continued
The Company also pays members of the Board of Directors a management fee. The management fee is currently $100 per hour for meetings attended. The Company paid the Chairman of the Board $48,000 and $7,200 in management fees during 2013 and 2012, respectively. The Company paid the Medical Director $95,820 in management fees during 2013 and 2012. The Company paid $168,370 and $157,320 in total management fees during 2013 and 2012, respectively.
As of December 31, 2013 and 2012, the Company had amounts payable lo related parties of $28,085 and $17,922, respectively.
7. Employee Benefit Plan
The Company has a profit-sharing 401 (k) retirement plan covering full-time and part-time personnel with al least 1,000 hours of service and twelve months of continuous service. Management has elected to match 50 percent of employees first 6 percent contributed and contributed a discretionary 3 percent of gross wages for the current year. The profit sharing and matching contribution was $73,738 and $64,407 in 2013 and 2012, respectively.
8. Subsequent Events
Management evaluates events and transactions that occur after the balance sheet date as potential subsequent events. Management has performed this evaluation through the date of the independent auditor's report.
On February 27, 2014, the Company entered into a stock purchase agreement with ATRIO Health Plan, Inc. to purchase 500 shares of voting stock for $1,500,000 contingent upon ATRIO achieving a minimum amount of. annualized premiums by December 31, 2016. In accordance with the agreement, the Company paid a $500,000. non-refundable deposit to an escrow account as of February 28, 2014.and is required to fund an additional $1,000,000 by December 31, 2014.
Appendix C.2
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SUPPLEMENTARY INFORMATION
Appendix C.2
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OREGON HEALTH MANAGEMENT SERVICES AND SUBSIDIARY CONSOLIDATED SCHEDULES OF GENERAL AND ADMINISTRATIVE EXPENSES
For the Years Ended December31, 2013 and 2012
2013
·Salaries $ 1,535,621 $
Provider tax 294,252
Employee benefits 167,532
Payroll taxes 142,130
Rent and lease expense 94,922
Medical supplies 84,022
Contributions 35,100
Medical director 95,820
Retirement plans 73,738
Contract labor 148,225
Office supplies 37,479
Depreciation 69,898
Professional services 85,594
Telephone 40,601
Computer expense 82,397
Insurance ~7,676
Board fees 72,550 .
Dues and subscriptions 119,993
Repairs and maintenance 32,054
Travel, training, and conference expenses 23,760
Utilities 22,163
Education 23,900
Copier maintenance 8,737
Miscellaneous . 23,463
Transformation grant 148,774
Postage 13,985
Vehicle expense 5,024
Printing 6,657 Community outreach 2,578
Total general and administrative expenses $ 3,518,645 $
2012
1,325,779 2,694,367
144,560 123,930
87,859 85,719
3,000 95,820 64,407 69, 182 38,251
156,211 81,595 34,063 96,200 27,274 61,500 38,068 11,210 14,981 20,199
7,089 120
12,300
16, 148 6,932
13,494 1,702
5,331,960
- 14 - Appendix C.2
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OREGON HEAL TH MANAGEMENT SERVICES
FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
. For the Years Ended December 31, 2012 and 2011
Appendix C.3
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OREGON HEAL TH MANAGEMENT SERVICES FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
For the Years Ended December 31, 2012 and 2011
Independent Auditor's Report
Financial Statements:
Balance Sheets
Statements of Income
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
Supplementary Information:
TABLE OF CONTENTS
Schedules of General and Administrative Expenses
1 - 2
3-4
5
6
7
8-12
13
Appendix C.3
JonesJRoth ~_.......... __ CPAs & Business Advisors
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors Oregon Health Management Services Grants Pass, Oregon
Report on the financial Statements
We- have audited the accompanying financial statements of Oregon Health Management Services (an Oregon corporation) as of December 31, 2012 and 2011, and the related statements of income, stockholders' equity, and cash flows for the years !hen ended, and the related notes to the financial statements,
Management's Responsiblllty for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted In the United States of America: this Includes the design, and maintenance of Internal control relevant to the. preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsiblllty
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers Internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstahces, but not for the purpose of expressing an opinion. An audit also includes evaluating the appropriateness of the entity's Internal controL Accordingly, we express no such opinion. An audit also Includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is s-ufflcient and appropriate to provide a basis for our opinion. ,
Tiie Right People B<!$lde You,
Cf'As & Buslr1es$ Advisors Retirement Plan Services Financial Advisot's
BENO 300 SW Columbia Street Suite 201
EUG£N£ 432 West 11th Avenue Eugene, OR 971,01
phone (541) 687-2320
lllUSOORO 5635 NE Elam Young Pkwy, Suite 100
> jrcpa.con1
Bond. OR 9770< phone (541) 382-3590
fm1 {5'11) 382-3587 f<m {5/ii) 1+85-0960
Hillsboro, OR 97124 p/1one (503) 648-0521
fmc (503) ~~C.3 (t ~~~;:!~~' I Qty( led paper
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Opinion
In our opinion, the financial statements referred to above present fairly, In all material respects, the financial position of Oregon Health Management Services as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. ·
Report on Supplementary Information
Our al1dits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information, as listed In the table of contents, is presented for purposes of additional analysis and is not a required part of the financial st11tements. Such information Is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of American. In our opinion, the information is fairly stated In all material respects in relation to the financial statements as a whole.
~<::\-~I~' c_, Jones & Roth, P.C. Eugene, Oregon June 19, 2013
Appendix C.3
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FINANCIAL STATEMENTS
Appendix C.3
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2012
Liabilities and Stockholders' Equity
Current liabilities Medical claims payable $ 1,273,000 Mental health claims payable 333,852 Accounts payable 85,923 Income taxes payable 73,467 Provider tax payable 1,044 Accrued wages and related taxes 211,151
Total current liabilities 1,978,437
Future income tax llablllty
Stockholders' equity Class A common stock no par value; voting, 5,000 shares
authorized, -0- issued and outstanding in 2012 and 2011, respectively Class B common stock no par value; voting, 5,000 shares
authorized, 180 and 190 shares issued and outstanding in 2012 and 2011, respectively 18,000
Retained earnings 1, 102,095
Total stockholders' equity 1, 120,095
Total liabilities and stockholders' equity $ 3,098,532
The accompanying notes are an integral part of these statements.
- 4 -
2011
$ 1,719,000
108,525
50,450 182,724
2,060,699
3 290
19,000 828,980
847,980
$ 2,911,969
Appendix C.3
OREGON HEAL TH MANAGEMENT SERVICES STATEMENTS OF INCOME
For the Years Ended December 31, 2012 and 2011
2012
Percent of Amount Revenue
Revenue
Prepaid plan revenue $ 21,253,315 97.6 Other contract services 520,503 2.4
Total revenue 21,773,818 100.0
Cost of services Claims expense 10,619,268 49.0 Capitation payments 5,274,812 24.3 Other 47 285
Total cost of services ~. 'ZDO)\) )\~ 15,941,365 73.2
Excess of revenue over cost of services ""I ~'jy
5,832,453 26.8 '1'@,"" ~ General and administrative expenses 5,331,960 24.5
Operating income (loss) 500,493 2.3
Other income Interest income 6,205 0.1
Income (loss) before taxes 506,698 2.3
Provision for (benefit from) Income taxes Current 143,967 0.7 Deferred 53,616 0.3
Total provision for (benefit from) Income taxes 197,583 0.9
Net income (loss) $ 309, 115 1.5
2011
Percent of Amount Revenue
$ 20,338,380 97.8 462,926 2.2
20,801,306 100.0
11,464,909 55.2 4,916,907 23.7
28,265
16,410,081 78.9
4,391,225 21.1
4,621,305 22.2
(230,080) (1.1)
12,687 0.1
(217,393) (1.0)
(22,309) (0.1) (57,592) (0.3)
(79,901) (0.4)
$ (137,492) (0.6)
The accompanying notes are an integral part of these statements.
Appendix C.3
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Balance, December 31, 201 O
Net loss
Dividends paid
Stock issuance
Balance, December 31, 2011
Net income
Dividends paid
Stock redemption
Balance, December 31, 2012
OREGON HEAL TH MANAGEMENT SERVICES STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2012 and 2011
Common Stock Common Stock Class A Class B
Shares Amount Shares Amount
$ 160 $ 16,000
30 3,000
190 19,000
(10) (1,000)
$ 180 $ 18,000
Retained Earnings Total
$ 1,004,472 $ 1,020,472
(137,492) (137,492)
(38,000) (38,000)
3 000
828,980 847,980
309,115 309,115
(36,000) (36,000)
(1,000)
$ 1, 102,095 $ 1, 120,095.
The accompanying notes are an integral part of these statements.
-6- Appendix C.3
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OREGON HEAL TH MANAGEMENT SERVICES STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2012 and 2011
Cash flows from operating activities Net income (loss) $ Adjustments to reconcile net income (loss) to
net cash provided by operating activities: Depreciation Change in future income tax benefits and liabilities
(Increase) decrease in: Accounts receivable Refundable income taxes Prepaid expenses
Increase (decrease) in: Medical claims payable Mental Health Claims Payable Accounts payable Income taxes payable Provider tax payable Accrued wages and related taxes
Net cash provided by operating activities
Cash flows from investing activities Decrease in restricted cash Purchases of equipment
Net cash used by investing activities
Cash flows from financing activities Purchase (redemption) of stock Dividends paid
Net cash used by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year $
Supplemental cash flow information Cash paid for income taxes $
2012
309, 115
156,211 53,616
(320,777) 37,521 32,664
(446,000) 333,852 (22,602) 73,467
(49,406) 28,427
186,088
(46,296) (20,843)
(67, 139)
(1,000) (36,000)
(37,000)
81,949
1,685,796
1,767745
15,000
The accompanying notes are an integral part of these statements.
-7-
2011
$ (137,492)
149,706 (57,592)
(16,221) (37,521) (59,464)
481,680
(33,528) (3,000) 1,309
11,755
299,632
(2,434) (48,657)
(51,091)
3,000 (38,000)
(35,000)
213,541
1,472,255
$ 1,685,796
$ 70,500
Appendix C.3
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11
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OREGON HEAL TH MANAGEMENT SERVICES NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies
Description of Operations
Oregon Health Management Services (the Company) was organized in the state of Oregon on October 24, 1995, and started operations May 1, 1996, The Company is currently under contract with the State of Oregon Department of Human Services, Division of Medical Assistance Programs (DMAP) to provide prepaid medical services in Josephine and Jackson Counties, Oregon. The service contract was renewed January 1, 2012 and expired September 1, 2012.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with the accrual basis of accounting whereby revenues are recognized when earned and expenses are recognized when an obligation is incurred.
Cash and Cash Equivalents
Management considers cash and cash equivalents to consist of cash deposits arid short-term, highly liquid investments with remaining maturities of three months or less when acquired and are carried at cost, which approximates market value.
Accounts Receivable
Accounts receivable consists of amounts due under various counseling contracts and claim refunds. The Company does not require collateral or other security to support accounts receivable, No allowance has been recorded for uncollectible accounts as management considers all accounts to be. collectible. The Company does not add interest or finance charges to the outstanding receivables.
Furniture, E:quipment, and Leasehold Improvements
Furniture, equipment, and leasehold improvements are stated at cost. Leasehold improvements and replacements of furniture and equipment are capitalized. Maintenance and repairs are charged to current operations as incurred, Depreciation of furniture, equipment, and leasehold improvements is computed using the straight-line method over the estimated useful lives ranging from 5 to 15 years. Software is amortized over three years.
Medical Claims Payable
Claims incurred represent capitation and noncapitation payments for services rendered during the year. The medical claims payable liability is based on experience statistics related to the nature and volume of work performed. This estimated liability is periodically evaluated by management in order to maintain it at a level that is sufficient to absorb probable incurred but not reported claims. Management's evaluation of the adequacy of the estimate is based on an analysis of claims paid after the balance sheet date and an actuarial review of historical claim experience,
- 8 - Appendix C.3
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OREGON HEAL TH MANAGEMENT SERVICES NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies, continued
Managed Care Organization Taxes Payable
Effective May 2004, DMAP implemented a 5.5 percent managed care tax on premiums paid to fullycapitated health plans. Taxes are payable quarterly and calculated based on premium collections during the quarter. Effective October 1, 2009, the rate was reduced to 1.0 percent. Tax payments are accrued monthly and are due 45 days after each quarter end.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Future income tax benefits are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Future income tax benefits and deferred tax liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires the Company to report information regarding its exposure to various tax positions taken by the Company. The Company has determined whether any tax positions have met the recognition threshold and has measured the Company's exposure to those tax positions. Management believes that the Company has adequately addressed all relevant tax positions and that there are no unrecorded tax liabilities. Federal and state tax authorities generally have the right to examine and audit the previous three years of tax returns filed.
Revenue Recognition
Premiums and administration fees earned from capitation payments received from DMAP are recognized in the month in which they are earned.
Reinsurance
In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsurance to its single reinsurer under excess coverage agreements. In addition, the Company is required to obtain certain reinsurance as a contractor of DMAP. These agreements call for the Company to cede reinsurance premiums to their re insurer on a per member per month basis, in return, the reinsurer assumes 90 percent of the risk in excess of specified limits. Reinsurance agreements do not relieve the Company from its obligation to providers. Amounts recoverable from the reinsurance policy are estimated in a manner consistent with the claim liability associated with the reinsurance policy. Reinsurance premiums and reinsurance recoveries are included in claims expense. Reinsurance premiums were $254,327 and $219,616 in 2012 and 2011, respectively .
- 9 - Appendix C.3
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OREGON HEAL TH MANAGEMENT SERVICES NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies, continued
Use of Estimates
The preparation of financial statements, in conformity with generally accepted accounting principles of the United States of America, requires the Company make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The amounts estimated could differ from actual results. Significant estimates in these financial statements include the liability for medical claims incurred but not reported.
Restricted Cash
Restricted cash consists of a money market account at Umpqua Bank with a balance of $618, 765 and $572,469 at December 31, 2012 and 2011, respectively. These funds are restricted as to their use and are held to satisfy a required reserve of DMAP. for the Company to maintain its status as a contractor.
2. Commitments
The Company entered into an operating lease with a third-party for office space beginning. on October 1, 2007. The lease agreement requires the Company to make minimum monthly rental payments of $3,250. The lease expires October 1, 2016.
The future minimum lease payments are as follows:
Year Ending December 31,
2013 2014 2015 2016 2017
Thereafter
Total
$ 46,513 46,513 46,513 29,250
The Company has also entered into a number of operating leases which are renewable on a month to month basis. Rent expense totaled $87,859 and $91,866 in 2012 and 2011, respectively.
3. Concentrations of Risk
The Company maintains its cash and investments in bank deposit accounts, which at times may exceed ·federally insured limits. The Company makes such investments with entities management believes to have high credit quality and has not incurred any losses in such accounts, and believes ii is not exposed to any significant credit risk on cash and cash equivalents. At December 31, 2012 and 2011, the Company's deposits were in excess of federally insured limits by $416,528 and $888,716, respectively. ·
Appendix C.3
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OREGON HEAL TH MANAGEMENT SERVICES NOTES TO FINANCIAL STATEMENTS
3. Concentrations of Risk, continued
The Company derived approximately 98 percent of its revenue from the contract with DMAP in 2012 and 2011, respectively. Loss of the contract due to non-renewal or state legislative decisions to discontinue funding the program could materially affect the financial position of the Company. The contract is renewable on an annual basis effective January 1 with interim rate adjustments.
4. Common Stock
5.
The Company has two classes of common stock: Class A and Class B. Class A common stock is no par value voting stock. There are 5,000 shares of Ciass·A common stock authorized; none were issued and outstanding at December 31, 2012 and 2011, respectively.
Class B common stock is no par value voting stock. There are 5,000 shares of Class B common stock authorized; 180 shares and 190 shares were issued and outstanding at December 31, 2012 and 2011, respectively.
Income Taxes
2012 2011 Net future income tax benefits consist of:
Temporary federal differences $ 6,894 $ 64,727 Temporary state differences 29,038 24 821
Total net future income tax benefits $ 35,932 :Jl 89 548
The primary timing differences giving rise to future income tax benefits and liabilities are: • Medical claims and contractual withholding liabilities deducted for book purposes but
deferred to future years for income tax reporting purposes. • The difference between depreciation for tax purposes and the amount recorded for financial
reporting purposes. • Certain payroll related liabilities recognized earlier for financial reporting purposes than for
tax purposes. • Charitable contributions carried forward. • Prepaid expenses.
Provision for (benefit from) income taxes consist of: Current Income taxes - federal Current Income taxes - state Future Income tax benefits - federal Future income tax benefits - state
Total provision for (benefit from) income taxes
- 11 -
$
$
2012 2011
128,967 $ (37,309) 15,000 15,000 35,689 (43,245) 17 927 (14,347)
197 583 :Jl (78,801)
Appendix C.::.i
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OREGON HEAL TH MANAGEMENT SERVICES NOTES TO FINANCIAL STATEMENTS
6. Related Party Transactions
The Company entered into a month.to-month operating lease from Grants Pass Clinic, LLP for office space beginning on January 1, 2008. Grants Pass Clinic, LLP is owned 100 percent by the shareholders of the Company. Total payments were $16,200 for the years ended December 31, 2012 and 2011.
The Company also pays members of the Board of Directors a management fee. The management fee Is currently $1 oo per hour for meetings attended. The Company paid the Chairman of the Board $7,200 in management fees during 2012 and 2011. The Company paid the Medical Director $95,820 and $69,660 in management fees during 2012 and 2011, respectively. The Company paid $157,320 and $91,785 in total managementfees during 2012 and 2011, respectively.
7. Employee Benefit Plan
The Company has a profit-sharing 401 (k) retirement plan covering full-time and part-time personnel with at least 1,000 hours of service and twelve months of continuous service. Management has elected to match 50 percent of employees first 6 percent contributed and contributed a discretionary 3 percent of gross wages for the current year. The profit sharing and matching contribution was $64,407 and $60,798 in 2012 and 2011, respectively.
8. Subsequent Events
. Management evaluates events and transactions that occur after the balance sheet date as potential subsequent events. Management has performed this evaluation through the date of the independent auditor's report.
- 12 - Appendix C.3
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SUPPLEMENTARY INFORMATION
Appendix C.3
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OREGON HEAL TH MANAGEMENT SERVICES SCHEDULES OF GENERAL AND ADMINISTRATIVE EXPENSES
F'or the Years Ended December 31, 2012 and 2011
2012
Salaries $ 1,325,779
Provider tax 2,694,367
Employee benefits 144,560
Payroll taxes 123,930
Rent and lease expense 87,859
Medical supplies 85,719
Contributions 3,000
Medical director 95,820
Retirement plans 64,407
Contract labor 69, 182
Office supplies 38,251
Depreciation 156,211
Professional services 81,595
Telephone 34,063
Computer expense 96,200
Insurance 27,274
Board fees 61,500
Dues and subscriptions 38,068
Repairs and maintenance 11,210
Travel, training, and conference expenses 14,981
Utilities 20,199
Education 7,089
Copier maintenance 120
Miscellaneous 12,300
Postage 16, 148
Vehicle expense 6,932
Printing 13,494 Community outreach 1 702
Total general and administrative expenses $ 5,331,960
- 13"
2011
$ 1,245,894 2,245,835
133,206 119,435 91,866 85,242
69,660 60,798 73,445 36,593
149,706 51,435 29,984 80,625 26,720 22,125 22,686 5,149
17, 140 13,183 15, 165
45 6,911
10,292 4,473
. 1,198 2,494
$ 4,621,305
Appendix C.3
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OREGON HEAL TH MANAGEMENT SERVICES
FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
For the Years Ended December 31, 2011and2010
Appendix C.4
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OREGON HEAL TH MANAGEMENT SERVICES FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
For the Years Ended December 31, 2011 and 2010
TABLE OF CONTENTS
Independent Auditor's Report
Financial Statements:
Balance Sheets
Statements of Income
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
Supplementary Information:
Schedules of General and Administrative Expenses
1
2-3
4
5
6
7 - 11
12
Appendix C.4
• I
JonesJRoth ~; & Buslne·~; Advisors
INDEPENDENT AUDITOR'S REPORT
To the· Board of. Directors Oregon Health Management Services Grants Pass, Oregon
We have audlled the accompanying balance sheets of Oregon Health Management Services (an Oregon corporation) as of December 31, 2011 and 2010, and the related statements of income, stockhoidera' equity, and cash flows for the years then ended. These finanoial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our aud.its.
We conducted our audits In accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits lo obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit Includes examining, on a test basis, evidence supporting the amounts and dlsclosures in the financial statements. An audit als"o includes assassin(;! the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the finan9lal position of Oregon Health Management Services as of December 31, 2011 and 2010, and the results of Its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary Information, as listed in the table of contents, is presented for purposes of additional analysis· and is not a required part of. the basic financial statements. Such information Is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied In the audit of t.he basic financial statements and certain additional procedures, including comparing and reconciling such Information directly to the underlying accounling and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures In accordance with at1diting standards generally flGoepted in the United States ofAmerican. In our opinion, the Information is fairly stated in all material respects in relation to the financial statements as a whole. ·
b~~n ~A P.c. . . r~n_,, Jones & Roth, P.C. Eugene, Oregon · May 29, 2012
lhe Right People Beside You,
CPA::; & IJusine.ss /\dv/.sor!·; f~etirt·rr1er11- Plan Service~; t·i1 ldnclal /\dvisors
BCND 300 SW Columbia Street Suite 201
l::UIJENE 432West11th Avenue Eugene:, OR 97 AOl
phone (541) 687-2320
HILLS[l.(l[l(J 5635 NEELamVoungPl<wy. ,Suite 100
:;, j1·cpa.com
Bend, OR 97702 phone (51;1) 382-3590
foJr {541) 38'.i.-3587 fOH {541). 485-0960
Hillsboro, OR 97124 phone {503) 648-0521
Jai< {503) M.~C.4 () :~~:;_drt0 1et'.yr.ledpap~r
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· FINANCIAL STATEMENTS
Appendix C.4
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2011
Liabilities and Stockholders' Equity
Current liabilities Medical claims payable $ 1,719,000
Accounts payable 108,525 Income taxes payable Provider tax payable 50,450 Accrued wages and related taxes 182,724
Total current liabilities 2,060,699.
Future income tax liability 3290
Stockholders' equity Class A common stock no par value; voting, 5,000 shares
authorized, -0- issued and outstanding in 2011 and 2010, respectlvely Class B common stock no par value; voting, 5,000 shares
authorized, 190 and 160 shares issued and outstanding in 2011 and 2010, respectively 19,000
Retained earnings 828,980
Total stockholders' equity 847 980
Total liabilities and stockholders' equity $ _2,911,96.§.
The accompanying notes are an integral part of these statements,
- 3 -
2010
$ 1,237,320 142,054
3,000 49,141
170 969
1,602,484
13 909
16,000 1,004,472
1,020,472
$ 2,636,fl.65
Appendix C.4
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OREGON HEAL TH MANAGEMENT SERVICES STATEMENTS OF INCOME
For the Years Ended December 31, 2011 and 2010
2011 2010 Percent of Percent of
Amount Revenue Amount Revenue Revenue
Prepaid plan revenue $ 20,338,380 97.8 $ 17,395,839 97.0 Other contract services 462,926 2.2 528 979 3.0
Total revenue 20,801,306 100.0 17,924,818 100.0
Cost of services Claims expense 11,464,909 55.2 9,714,707 54.1 Capitation payments 4,916,907 23.7 4,297,474 24.0 Other 28,265 11,118 0.1
Total cost of services 16,410,081 78.9 14,023,299 78.2
Excess of revenue over cost of services 4,391,225 21.1 3,901,519 21.8
General and administrative expenses 4,621,305 22.2 3,845,344 21.5
Operating income (loss) (230,080) (1.1) 56,175 0.3
Other income Interest income 12 687 0.1 26103 0.1
Income (loss) before taxes (217,393) (1.0) 82,278 0.4
Provision for (benefit from) income taxes Current (22,309) (0.1) (16,793) (0.1) Deferred (57,592) (0.3) 52,786 0.3
Total provision for (benefit from) income taxes (79,901) (0.4) 35 993 0.2
Net income (loss) $ (137,492) (0.6) $ 46 285 0.2
The accompanying notes are an integral part of these statements.
- 4 -Appendix C.4
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OREGON HEAL TH MANAGEMENT SERVICES STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December31, 2011and2010
Common Stock Common Stock Class A Class B Retained
Shares Amount Shares Amount Earnings Total
Balance, December 31, 2009 $ 180 $ 18,000 $ 990,187 $1,008, 187
Net income 46,285 46,285
Dividends paid (32,000) (32,000)
Stock redemption (20) (2,000) (2,000)
Balance, December 31, 2010 160 16,000 1,004,472 1,020,472
Net loss (137,492) (137,492)
Dividends paid (38,000) (38,000)
Stock issuance 30 3,000 3,000
Balance, December 31, 2011 $ 190 $ 19,000 $ 828,980 $ 847,980
The accompanying notes are an integral part of these statements.
- 5 -Appendix C.4
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OREGON HEALTH MANAGEMENT SERVICES STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2011 and 2010
2011
Cash flows from operating activities Net i_ncome (loss) $ (137,492)
Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 149,706
Change in future income tax benefits and liabilities (57,592)
(Increase) decrease in: Accounts receivable (16,221)
Reinsurance receivable Refundable income taxes (37,521)
Prepaid expenses (59,464)
Increase (decrease) in: Medical claims payable 481,680
Accounts payable (33,528)
Income taxes payable (3,000)
Provider tax payable 1,309
Accrued wages and related taxes 11 755
Net cash provided by operating activities 299,632
Cash flows from investing activities Decrease in restricted cash (2,434)
Purchases of equipment (48,657)
Net cash used by investing activities (51,091)
Cash flows from financing activities Purchase (redemption) of stock 3,000
Dividends paid (38,000)
Net cash used by financing activities (35,000)
Net increase in cash and cash equivalents 213,541
Cash and cash equivalents, beginning of year 1,472,255
Cash and cash equivalents, erid of year $ 1,685,796
Supplemental cash flow information Cash paid.for income taxes $ 70,500
The accompanying notes are an integral part of these statements.
-6-
2010
$ 46,285
102,907 52,786
17,040 272,759
(1,595)
(225,942) 68,696
(63,818} 3,970
11,985
285 073
(8,484) (28,040)
(36,524)
(2,000) (32,000)
(34,000)
214,549
1,257,706
~ '1,472,255
$ 25,000
Appendix C.4
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I OREGON HEAL TH MANAGEMENT SERVICES
NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies
Description of Operations
Oregon Health Management Services (the Company) was organized in the state of Oregon on October 24, 1995, and started operations May 1, 1996. The Company is currently under contract with the State of Oregon Department of Human Services, Division of Medical Assistance Programs (DMAP) to provide prepaid medical services in Josephine and Jackson Counties, Oregon. The present service contract became effective January 1, 201 o, and may be renewed or extended at the end of its 1-year term. This option was exercised January 1, 2011.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with the accrual basis of accounting whereby revenues are recognized when earned and expenses are recognized when an obligation is incurred.
Cash and Cash Equivalents
Management considers cash and cash equivalents to consist of cash deposits and short-term, highly liquid investments with remaining maturities of three months or less when acquired and are carried at cost, which approximates market value.
Accounts Receivable
Accounts receivable consists of amounts due under various counseling contracts and claim refunds. The Company does not require collateral or other security to support accounts receivable. No allowance has been recorded for uncollectible accounts as management considers all accounts to be collectible. The Company does not add interest or finance charges lo the outstanding receivables.
Furniture, Equipment, and Leasehold Improvements
Furniture, equipment, and leasehold improvements are stated at cost. Leasehold improvements and replacements of furniture and equipment are capitalized. Maintenance and repairs are charged to current operations as incurred. Depreciation of furniture, equipment, and leasehold improvements is computed using the straight-line method over the estimated useful lives ranging from five to fifteen years. Software is amortized over three years.
Medical Claims Payable
Claims incurred represent capitation and noncapitation payments for services rendered during the year. The medical claims payable liability Is based on experience statistics related to the nature and volume of work performed. This estimated liability is periodically evaluated by management in order to maintain it at a level that is sufficient to absorb probable incurred but not reported claims. Management's evaluation of the adequacy of the estimate is based on an analysis of clainis paid after the balance sheet date and an actuarial review of historical claim experience.
-7-Appendix C.4
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OREGON HEALTH MANAGEMENT SERVICES NOTES TO FINANCIAL STATEMENTS
Nature of Operations and Summary of Significant Acco.unting Policies, continued
Managed Care Organization Taxes Payable
Effective May 2004, DMAP implemented a 5.5 percent managed care tax on premiums paid to fullycapitated health plans: Taxes are payable quarterly and calculated based on premium collections during the quarter. Effective October 1, 2009, the rate was reduced to 1.0 percent. Tax payments are accrued monthly and are due 45 days after each quarter end.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred Income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Future income tax benefits are reduced by a valuation allowance when, In the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Future income tax benefits and deferred tax liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to report information regarding its exposure to various tax positions taken by the Company. The Company has determined whether any tax positions have met the recognition threshold and has measured the Company's exposure to those tax positions. Management believes that the Company has adequately addressed all relevant tax positions and that there are no unrecorded tax liabilities. Federal and state tax authorities generally have the right to examine and audit the previous three years of tax returns filed.
Revenue Recognition
Premiums and administration fees earned from capitation payments received from DMAP are recognized in the month in which they are earned.
Reinsurance
In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsurance to its single reinsurer under excess coverage agreements. In addition, the Company Is required to obtain certain reinsurance as a contractor of DMAP. These agreements call for the Company to cede reinsurance premiums to their reinsurer on a per member per month basis, in return, the reinsurer assumes 90 percent of the risk in excess of specified limlts. Reinsurance agreements do not relieve the Company from its obligation to providers. Amounts recoverable from the reinsurance policy are estimated in a manner consistent with the claim liability associated with the reinsurance policy. Reinsurance premiums and
·reinsurance recoveries are included in claims expense. Reinsurance premiums were $219,616 and $177,524 in 2011 and 2010, respectively.
- 8 -Appendix C.4
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OREGON HEAL TH MANAGEMENT SERVICES NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies, continued
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles of the United States of America requires the Company make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The amounts estimated could differ from actual results. Significant estimates in these financial statements include the liability for medical claims incurred but not reported.
Restricted Cash
Restricted cash consists of a money market account at Umpqua Bank with a balance of $572,469 and $570,035 at December 31, 2011 and 2010, respectively. These funds are restricted as to their use and are held to satisfy a required reserve of DMAP for the Company to maintain its status as a contractor. .
2. Commitments
The Company entered into an operating lease with a third-party for office space beginning on October 1, 2007. The lease agreement requires the Company to make minimum monthly rental payments of $3,250. The lease expires October 1, 2016.
The Company entered into an operating lease with a third party for office space beginning on · October 1, 2007. The lease agreement required the Company to make minimum monthly rental payments of $1,750. The lease expired October 31, 2009. On November 1, 2010, the Company renewed the lease for an additional year. The lease agreement requires the Company to make minimum monthly rental payments of $2,500. The lease expired October 31, 2011.
The future minimum lease payments are as follows:
Year Ending December 31,
2012 2013 2014 2015 2016
Thereafter
Total
$ 46,513 46,513 46,513 46,513 29,250
215 302
Rent expense totaled $91,866 and $98,482 in 2011and2010, respectively.
-9-Appendix C.4
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OREGON HEALTH MANAGEMENT SERVICES NOTES TO FINANCIAL STATEMENTS
3. Concentrations of Risk
The Company maintains its cash and investments in bank deposit accounts, which at limes may exceed federally insured limits. The Company makes such investments with entities management believes to have high credit quality and has not incurred any losses In such accounts, and believes ii is not exposed to any significant credit risk on cash and cash equivalents. Al December 31, 2011 and 2010, the Company's deposits were in excess of federally insured limits by $888,716 and $944,930, respectively.
The Company derived approximately 98 percent and 97 percent of its revenue from the contract with DMAP In 2011 and 2010, respectively. Loss of the contract due to non-renewal or state legislative decisions to discontinue funding the program could materially affect the financial position of the Company. The contract is renewable on an annual basis effective January 1 with interim rate adjustments.
4. Common Stock
5.
The Company has two classes of common stack: Class A and Class B. Class A common stock is no par value voting stock. There are 5,000 shares of Class A common stock authorized; none were issued and outstanding at December 31, 2011 and 2010, respectively.
Class B common stock is no par value voting stock. There are 5,000 shares of Class B common stock authorized; 190 shares and 160 shares were issued and outstanding at December 31, 2011 and 201 o, respectively.
Income Taxes
2011 2010 Future income tax benefits consist of:
Temporary federal differences $ 24,821 $ 21,482 Temporary state differences 64 727 10 474
Total future income tax benefits $ 89,5~~ :!> 31 956
The primary timing differences giving rise to future income tax benefits and liabilities are: • Medical claims and contractual withholding liabilities deducted for book purposes but
deferred to future years for·income tax reporting purposes. • The difference between depreciation for tax purposes and the amount recorded for financial
reporting purposes. • Certain payroll related liabilities recognized earlier for financial reporting purposes than for
tax purposes. • Charitable contributions carried forward.
- 10 -Appendix C.4
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5. Income Taxes, continued
Provision for (benefit from) income taxes consist of: Current income taxes - federal $ Current Income taxes - state Future income tax benefits - federal Future income tax benefits - state
2011
(37,309) 15,000
(43,245) 114,347)
(79 901) Total provision for (benefit from) income taxes ,.,$~~="""~~
6. Related Party Transactions
2010
$ (31,793) 15,000 48,678 4108
~ 35 993
The Company entered into a month-to-month operating lease from Grants Pass Clinic, LLP for office space beginning on January 1, 2008. Grants Pass Clinic, LLP is owned 100 percent by the shareholders of the Company. Total payments were $16,200 for the years ended December 31, 2011 and 2010.
The Company also pays members of the Board of Directors a management fee. The management fee is currently $75 per hour for meetings attended. The Company paid the Chairman of the Board $7,200 in management fees during 2011 and 2010. The Company paid the Medical Director $69,660 and $58,208 in management fees during 2011 and 2010, respectively. The Company paid $91,785 and $82,695 in total management fees during 2011 and 2010, respectively.
7. Employee Benefit Plan
The Company has a profit-sharing 401 (k) retirement plan covering full-time and part-time personnel with at least 1,000 hours of service and twelve months of continuous service. Management has elected to match 50 percent of employees first 6 percent contributed and contributed a discretionary 3 percent of gross wages for the current year. The profit sharing and matching contribution was $60,798 and $57,420 in 2011 and 2010, respectively.
8. Subsequent Events
Management evaluates events and transactions that occur after the balance sheet date as potential subsequent events. Management has performed this evaluation through the date of the auditor's report. ·
Subsequent to year end the state of Oregon required the Company to increase their restricted cash reserves by $10,000 to satisfy the state required reserve of DMAP.
- 11 -Appendix C.4
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SUPPLEMENTARY INFORMATION
Appendix C.4
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OREGON HEAL TH MANAGEMENT SERVICES SCHEDULES OF GENERAL AND ADMINISTRATIVE EXPENSES
For the Years Ended December 31, 2011 and 2010
2011
Salaries $ 1,245,894
Provider tax 2,245,835
Employee benefits 133,206
Payroll taxes 119,435
Rent and lease expense 91,866
Medical supplies 85,242
Contributions Medical director 69,660
Retirement plans 60,798
Contract labor 73,445
Office supplies 36,593
Depreciation 149,706
Professional services 51,435
Telephone 29,984
Computer expense 80,625
Insurance 26,720
Board fees 22, 125
Dues and subscriptions 22,686
Repairs and maintenance 5,149
Travel, training, and conference expenses 17, 140
Utilities 13,183
Education 15,165
Copier maintenance 45
Miscellaneous 6,911
Postage 10,292
Vehicle expense 4,473
. Printing 1,198
Community outreach 2 494
Total general and administrative expenses $ 4,621,305
• 12 -
2010
$ 1,248,816 1,574,946
135,918 120,633 98,482 73,051 50,000 58,208 57,420 54,029
. 28,744 102,907 39,283 28,277 31,683 26,428 24,487 20,966 11,713 8,516 9,506 9,577
13,061 8,609 6,738
364 2 982
$ 3,845,344
Appendix C.4
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OREGON HEAL TH MANAGEMENT SERVICES
FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
For the Years Ended December 31, 2010 and 2009
Appendix C.5
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OREGON HEAL TH MANAGEMENT SERVICES FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION.
For the Years Ended December 31, 2010 and 2009
Independent Auditor's Report
Financial Statements:
Balance Sheets
Statements of. Income
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
Supplementary Information:
TABLE OF CONTENTS
Schedules of General and Administrative Expenses
1
2-3
4
5
6
7 - 11
12
Appendix C,5
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JoneSJRoth ~;;;;;~;s~ Advisors
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors Oregon Health Management Services Grants Pass, Oregon
We have audited the accompanying balance sheets of Oregon Health Management Services {an Oregon corporation) as of December 31, 2010 and 2009, and the related statements of income, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits fo obtain reasonable assurance about whether the financial statements are fre13 of material misstatement, An audit includes examining, on a test basis, evidence supporting the amounts and disclosures In the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Oregon Health Management Se.rvioes as of December 31, 2010 and 2009, and the results of its operations and cash flows for the years then ended In conformity with accounting principles generally accepted in the United States of America.
Our audltll were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The $upplementary information, as· /1$led in the table Of contents, Is presented for purposes of additional analysis and Is nbl a required part of the bask financial statements. Suoh information has been subjected to the audltihg procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated Jn all material respects in relation to the basic financial statements taken as a Whole.
~~~,t>c:. Jones & Roth, P.C, Eugene, Oregon June 21, 2011
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UJG1:i!4!; 432West11th Avenue Eugene, OR971f01
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FINANCIAL STATEMENTS
Appendix C.5
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2010
Liabilities and Stockholders' Equity
Current liabilities Medical claims payable $ 1,237,320 Accounts payable 142,054 Income taxes payable 3,000 Provider tax payable 49,141 Accrued wages and related taxes 170,969
Total current liabilities 1,602,484
Future Income tax liability 13 909
Stockholders' equity Class A common stock no par value: voting, 5,000 shares
authorized, zero issued and outstanding in 201 O and 2009 Class B common stock no par value; voting, 5,000 shares
authorized, 160 and 180 shares issued and outstanding in 201 O and 2009, respectively 16,000
Retained earnings 1004472
Total stockholders' equity 1,020,472
Total liabilities and stockholders' equity $ 2,636,865
The accompanying notes are an Integral part of these statements .
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2009
$ 1,463,262 73,357 66,818 45, 171
158 984
1,807,592
1 946
18,000 990 187
1,008,187
$ 2,817,725
Appendix C.5
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OREGON HEAL TH MANAGEMENT SERVICES STATEMENTS OF INCOME
For the Years Ended December 31, 2010 and 2009
2010 Percent of
Amount Revenue Revenue
Prepaid plan revenue $ 17,395,839 97.0 Other contract services 528,979 3.0
Total revenue 17,924,818 100.0
Cost of services Claims expense 9,714,707 54.2 Capitation payments 4,297,474 24.0 Other 11 118
Total cost of services 14,023,299 78.2
Excess of revenue over cost of services 3,901,519 21.8
General and administrative expenses 3,845,344 21.5
Operating income 56, 175 0.3
Other income Interest income 26103 0.1
Income before taxes 82,278 0.4
Provision for (benefit from) Income taxes Current (16,793) (0.1) Deferred 52,786 0.3
Total provision for income taxes 35,993 0.2
Net income $ 46,285 0.3
2009 Percent of
Amount Revenue
$16, 170,458 95.4 781,337 4.6
16,951,795 100.0
10,242,746 60.4 3,257,111 19.2
13 306 0.1
13,513, 163 79.7
3,438,632 20.3
3,197,970 18.8
240,662 1.5
45 504 0.3
286, 166 1.8
137,318 0.9 (11,168) (0.1)
126, 150 0.8
$ 160,016 1.0
The accompanying notes are an integral part of these statements .
• 4. Appendix c.s
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OREGON HEAL TH MANAGEMENT SERVICES STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2010 and 2009
Common Stock Common Stock Class A Class B
Shares Amount Shares Amount
Balance, December 31, 200$ $ 180 $ 18,000
Net income
Dividends paid
Balance, December 31, 2009 180 18,000
Net income
Dividends paid
Stock redemption (20) (2,000)
Balance, December31, 2010 $ 160 $ 16,000
Retained Earnings Total
$ 866, 171 $ 884,171
160,016 160,016
(36,000) (36,000)
990, 187 1,008, 187
46,285 46,285
(32,000) (32,000)
(2,000)
$1,004,472 $ 1,020,472 ~ -
The accompanying notes are an integral part of these statements.
Appendix C.5
OREGON HEAL TH MANAGEMENT SERVICES STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2010 and 2009
Cash flows from operating activities Net income Adjustments to reconcile net income to
net cash provided by operating activities: Depreciation Change In future income tax benefits and liabilities
(Increase) decrease in: Accounts receivable Reinsurance receivable Refundable Income taxes Prepaid expenses
Increase (decrease) in: Medical claims payable Accounts payable Income taxes payable Provider tax payable Accrued wages and related taxes
Net cash provided by operating activities
Cash flows from investing activities Increase in restricted cash Purchases of equipment
Net cash used by Investing activities
Cash flows from financing activities Redemption of stock Dividends paid
Net cash used by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental cash flow information Cash paid for Income taxes
$
$
$
2010 2009
46,285 $ 160,016
102,907 40,600 52,786 88,960
17,040 . (116,353) 272,759 (272,759)
71,646 (1,595) 3,050
(225,942) 108,583 68,696 18, 169
(63,818) 66,808 3,970 (168,307)
11,985 14 510
285 073 14 923
(8,484) (56,280) (28,040) (332,593)
(36,524) (388,873)
(2,000) (32,000) (36,000)
(34,000) (36,000)
214,549 (409,950)
1,257,706 1,667,656
1,472,255 $ 1,257,706
25, ooo "'"$ __ 7:...:0"'"5""o_,,,o
The accompanying notes are an integral part of these statements.
-6· Appendix C.5
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OREGON HEALTH MANAGEMENT SERVICES NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies
Description of Operations
Oregon Health Management Services (the Company) was organized In the state of Oregon on October 24, 1995, and started operations May 1, 1996. The Company is currently under contract with the State of Oregon, Department of Human Services, Division of Medical Assistance Programs (DMAP) to provide prepaid medical services In Josephine and Jackson Counties, Oregon. The present service contract became effective January 1, 2009, and may be renewed or extended at the end of its one-year term. This option was exercised January 1, 2010.
Basis of Presentation
The accompanying financial statements have been prepared In conformity with the accrual basis of accounting whereby revenues are recognized when earned and expenses are recognized when an obligation is incurred.
Cash and Cash Equivalents
Management considers cash and cash equivalents to consist of cash deposits and short-term, highly liquid investments with remaining maturities of three months or less when acquired and are carried at cost, which approximates market value.
Accounts Receivable
Accounts receivable consists of amounts due under various counseling contracts and claim refunds. The Company does not require collateral or other security to support accounts receivable. No allowance has been recorded for uncollectfble accounts as management considers all accounts to be collectible. The Company does not add Interest or finance charges to the outstanding receivables.
Furniture, Equipment, and Leasehold Improvements
Furniture, equipment, and leasehold improvements are stated at cost. Leasehold improvements and replacements of furniture and equipment are capitalized. Maintenance and repairs are charged to current operations as incurred. Depreciation of furniture, equipment, and leasehold Improvements Is computed using the straight-line method over the estimated useful lives ranging from five to fifteen years. Software is amortized over three years.
Medical Claims Payable
Claims incurred represent capitation and noncapitation payments for services rendered during the year. The medical claims payable liability is based on experience statistics related to the nature and volume of work performed. This estimated liability is periodically evaluated by management in order to maintain It at a level that Is sufficient to absorb probable incurred but not reported claims. Management's evaluation of the adequacy of the estimate is based on an analysis of claims paid after the balance sheet date and an actuarial review of historical claim experience.
- 7 - Appendix C.5
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OREGON HEAL TH MANAGEMENT SERVICES NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies, continued
Managed Care Organization Taxes Payable
Effective May 2004, DMAP. implemented a 5.5 percent managed care tax on premiums paid to fullycapitated health plans. Taxes are payable quarterly and calculated based on premium collections during the quarter. Effective October 1, 2009, the rate was reduced to 1.0 percent. Tax payments are accrued monthly and are due forty-five (45) days after each quarter end.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Future Income tax benefits are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Future income tax benefits and deferred tax liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Revenue Recognition
Premiums and administration fees earned from capitation payments received from DMAP are recognized in the month in which they are earned.
Reinsurance
In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsurance to Its single relnsurer under excess coverage agreements. In addition, the Company is required to obtain certain reinsurance as a contractor of DMAP. These agreements call for the Company to cede reinsurance premiums to their reinsurer on a per member per month basis, in return, the relnsurer assumes 90 percent of the risk in excess of specified limits. Reinsurance agreements do not relieve the Company from its obligation to providers. Amounts recoverable from the reinsurance policy are estimated in a manner consistent with the claim liability associated with the reinsurance policy. Reinsurance premiums and reinsurance recoveries are included in claims expense. Reinsurance premiums were $177,524 and $177,328 in 2010 and 2009, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles of the United States of America requires the Company make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The amounts estimated could differ from actual results. Significant estimates in these financial statements include the liability for medical claims incurred but not reported.
-8-Appendix C.5
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OREGON HEALTH MANAGEMENT SERVICES NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies, continued
Restricted Cash
Restricted cash consists of a money market account at Umpqua Bank with a balance of $570,035 and $561,551 at December 31, 2010 and 2009, respectively. These funds are restricted as to their use and are held to satisfy a required reserve of DMAP for the Company to maintain its status as a contractor.
2. Commitments
The Company entered into an operating lease with a third-party for office space beginning on October 1, 2007. The lease agreement requires the Company to make minimum monthly rental payments of $3,250. The lease expires October 1, 2016.
The Company entered into an operating lease with a third-party for office space beginning on October 1, 2007. The lease agreement required the Company to make minimum monthly rental payments of $1,750. The lease expired October 31, 2009. On November 1, 2010, the Company renewed the lease for an additional year. The lease agreement requires the Company to make minimum monthly rental payments of $2,500. The lease expires October 31, 2011.
The Company entered into an operating lease with a third-party for office space beginning on December 24, 2007. The lease agreement requires the Company to make minimum monthly rental payments of $1,007. The lease expired December 31, 2009.
The future minimum lease payments are as follows:
Year Ending December 31,
2011 2012 2013 2014 2015
Thereafter
Total
$
$
71,513 46,513 46,513 46,513 46,513 29 250
286.815
Rent expense totaled $98,482 and $85,431 In 2010 and 2009, respectively.
3. Concentrations of Risk
The Company maintains its cash and Investments in bank deposit accounts, which at times may exceed federally insured limits. The Company makes such Investments with entities management believes to have high credit quality and has not Incurred any losses in such accounts, and belleves it is not exposed to any significant credit risk on cash and cash equivalents. At December 31, 2010 and 2009, the Company's deposits were in excess of federally insured limits by $944,930 and $614, 735, respectively.
"9 - Appendix C.5
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OREGON HEALTH MANAGEMENT SERVICES NOTES TO FINANCIAL STATEMENTS
3. Concentrations of Risk, continued
The Company derived approximately 97 percent and 95 percent of its revenue from the contract with DMAP in 2010 and 2009, respectively. Loss of the contract due to non-renewal or state legislative decisions to discontinue funding the program could materially affect the financial position of the Company. The contract Is renewable on an annual basis effective January 1 with interim rate adjustments.
4. Common Stock
5.
The Company has two classes of common stock: Class A and Class 8. Class A common stock is no par value voting stock. There are 5,000 shares of Class A common stock authorized; none were issued and outstanding at December 31, 2010 and 2009, respectively.
Class B common stock Is no par .value voting stock. There are 5,000 shares of Class B common stock authorized; 160 shares and 180 shares were issued and outstanding at December 31, 2010 and 2009, respectively.
Income Taxes 2010 2009
Future income tax benefits consist of: Temporary federal differences $ 21,482 $ 70,160 Temporary state differences 10.474 14 582
Total future income tax benefits and liabilities $ 31 .!2§.6 :!> ~4,Z42
The primary timing differences giving rise to future income tax benefits and liabilities are: • Medical claims and contractual withholding liabilities deducted for book purposes but
deferred to future years for income tax reporting purposes. • The difference between depreciation for tax purposes and the amount recorded for financial
reporting purposes. • Certain payroll related liabilities recognized earlier for financial reporting purposes than for
tax purposes. • Charitable contributions carried forward.
Provision for (benefit from) income taxes.consist of: Current income taxes - federal Current income taxes - state Future income tax benefits - federal Future income tax benefits - state
Total provision for Income taxes
- 10 -
2010
$ (31,793) 15,000 48,678 4108
$ 35 993
2009
$ 122,318 15,000 31,689
(42,857)
:!> 12!'l,15Q
Appendix C.5
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OREGON HEAL TH MANAGEMENT SERVICES NOTES TO FINANCIAL STATEMENTS
6. Related Party Transactions
The Company entered into a month-to-month operating lease from Grants Pass Clinic, LLP for office space beginning on January 1, 2008. Grants Pass Clinic, LLP Is owned 100 percent by the shareholders of the Company. Total payments were $16,200 for the years ended December 31, 2010 and 2009, respectively.
The Company also pays members of the Board of Directors a management fee. The management fee is currently $75 per hour for meetings attended. The Company paid the Chairman of the Board $7,200 in management fees during 2010 and 2009, respectively. The Company paid the Medical Director $58,208 and $52,200 in management fees during 2010 and 2009, respec lively. The Company paid $82,695 and $75, 750 in total management fees during 201 O and 2009, respectively.
7. Employee Benefit Plan
The Company has a profit-sharing 401 (k) retirement plan covering full-time and part-time personnel with at least 1,000 hours of service and twelve months of continuous service. Management has elected to match 50 percent of employees first 6 percent contributed and contributed a discretionary 3 percent of gross wages for the current year. The profit sharing and matching contribution was $57,420 and $50,494 in 2010 and 2009, respectively.
8. Subsequent Events
Management evaluates events and transactions that occur after the balance sheet date as potential subsequent events. Management has performed this evaluation through the date of the auditor's report
Subsequent to year end, the Company was notified by DMAP that they received capitation payments for services that were also paid to physicians practices under fee for service contracts performed prior to December 31, 2010. DMAP is requiring the Company to repay these capitation payments. A payable was accrued for $79,701 and included with accounts payable at year end.
- 11 -Appendix C.5
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SUPPLEMENTARY INFORMATION
Appendix C.5
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OREGON HEALTH MANAGEMENT SERVICES SCHEDULES OF GENERAL AND ADMINISTRATIVE EXPENSES
For the Years Ended December 31, 2010 and 2009
2010
Salaries $ 1,248,816
Provider tax 1,574,946
Employee benefits 135,918
Payroll taxes 120,633
Rent and lease expense 98,482
Medical supplies 73,051
Contributions 50,000
Medical director 58,208
Retirement plans 57,420
Contract labor 54,029
Office supplies 28,744
Depreciation 102,907
Professional services 39,283
Telephone 28,277
Computer expense 31,683
Insurance 26,428
Board fees 24,487
Dues and subscriptions 20,966
Repairs and maintenance 11,713
Travel, training, and conference expenses 8,516
Utilities 9,506
Education 9,577
Copier maintenance Miscellaneous 13,061
Postage 8,609
Vehicle expense 6,738
Printing 364
Community outreach 2,982
Total general and administrative expenses $ 3,845,344
• 12 -
2009
$ 1,272,092 971,605 153,241 127,853 85,431 57,556 52,500 52,200 50,494 40,721 40,717 40,600 37,168 28,601 26,833 26,307 23,550 20, 171 19,811 17,407
.10,423 10,333 9,213 8,712 6,755 6,284
963 429
$ 3 197,970
Appendix C.5
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