UPMC Unaudited Quarterly Disclosure

32
 UPMC Unaudited Quarterly Disclosure For the Period Ended December 31, 2014

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UPMC UnauditedQuarterly Disclosure

Transcript of UPMC Unaudited Quarterly Disclosure

  • UPMC Unaudited Quarterly Disclosure

    For the Period Ended December 31, 2014

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014

    TABLE OF CONTENTSIntroduction to Managements Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

    Managements Discussion and Analysis

    FinancialHighlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

    OperatingComponentInformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

    RevenueandOperatingMetrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

    KeyFinancialIndicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

    MarketShare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

    AssetandLiabilityManagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

    Utilization Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

    Outstanding Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

    Debt Covenant Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

    Interim Consolidated Financial Statements

    ReviewReportofIndependentAuditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

    ConsolidatedBalanceSheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

    ConsolidatedStatementsofOperationsandChangesinNetAssets . . . . . . . . . . . . . . . . . . . . . . . . 20

    ConsolidatedStatementsofCashFlows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

    NotestoConsolidatedFinancialStatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

    ThefollowingfinancialdataasofandforthethreeandsixmonthperiodsendedDecember31,2014and2013isderivedfrom

    theinterimconsolidatedfinancialstatementsofUPMC.Theinterimconsolidatedfinancialstatements includealladjustments

    consistingofanormalrecurringnaturethatUPMCconsidersnecessaryforafairpresentationof itsfinancialpositionandthe

    resultsofoperationsfortheseperiods.ThefinancialinformationasofandforthetwelvemonthperiodendedJune30,2014is

    derivedfromUPMCsauditedconsolidatedfinancialstatements.Operatingandfinancialresultsreportedhereinarenotnecessarily

    indicativeoftheresultsthatmaybeexpectedforanyfutureperiods.

    The informationcontainedherein isbeingfiledbyUPMC for thepurposeofcomplyingwith itsobligationsunderContinuing

    DisclosureAgreements entered into in connectionwith the issuance of the series of bonds listed herein and disclosure and

    complianceobligationsinconnectionwithvariousbankingarrangements.TheinformationcontainedhereinisasofDecember

    31,2014.DigitalAssuranceCertification,L.L.C.,asDisseminationAgent,hasnotparticipatedinthepreparationofthisUnaudited

    QuarterlyDisclosure,hasnotexamineditscontentsandmakesnorepresentationsconcerningtheaccuracyandcompletenessof

    theinformationcontainedherein.

    UPMC UNAUDITED QUARTERLY DISCLOSUREFOR THE PERIOD ENDED DECEMBER 31, 2014

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 1

    UPMC,doingbusinessastheUniversityofPittsburghMedicalCenter, isoneoftheworlds leadingIntegratedDeliveryand

    FinancingSystems(IDFS).UPMCisbasedinPittsburgh,PennsylvaniaandprimarilyservesresidentsofwesternPennsylvania.

    Wealsodrawpatientsforhighlyspecializedservicesfromacrossthenationandaroundtheworld.UPMCs21hospitalsand

    morethan400clinicallocationscompriseoneofthelargestnonprofithealthsystemsintheUnitedStates.UPMChasthree

    majoroperatingcomponents:HealthServices,InsuranceServices,andInternationalandCommercialServices.

    Wearecommittedtoprovidingthecommunitiesthatourhospitals,outpatientcentersandotherhealthcarefacilitiesserve,as

    wellasourinsurancemembers,withhighquality,cost-effectivehealthcarewhilecontinuingtogrowourbusinessandexecute

    onourmissiontoprovideLifeChangingMedicine.AsthestewardsofUPMCscommunityassets,weareguidedbyourcore

    valuesofintegrity,excellence,respectandteamwork.Thesevaluesgovernthemannerinwhichweserveourcommunitiesand

    areembeddedintheexecutionanddeliveryofLifeChangingMedicine.

    UPMCcontinues tomakesignificant investments inequipment, technology,educationandoperational strategiesdesigned

    toimproveclinicalqualityatourhospitalsandoutpatientcenters.Asaresultofourefforts,UPMCiscurrentlyrankednumber

    12ontheU.S. News & World Report HonorRollofAmericasBestHospitals.Investmentsinouroperationsandcontinuedcapital

    improvementsareexpectedtobecomeincreasingly importantasthecompetitiveenvironmentofthewesternPennsylvania

    marketandchangestohealthcarenationallycontinuetoprogressandchangethelandscapeofpatientcareandreimbursement.

    Webuildnewfacilities,makestrategicacquisitions,andenterintojointventurearrangementsoraffiliationswithhealthcare

    businessesineachcaseincommunitieswherewebelieveourmissioncanbeeffectivelyutilizedtoimprovetheoverallhealthof

    thosecommunities.

    BycontinuallyevolvingandrefiningUPMCsworld-classfinancialprocesses,wefocusonachievingoptimalfinancialresults

    thatsupportthecontinueddevelopmentofourorganization,aswellasongoinginvestmentinthefutureofwesternPennsylvania.

    Wearecommittedtoachievingtheseobjectiveswithunyieldingcommitmentstotransparency inreportinganddisclosure,

    enterprise-wideintegration,andongoingprocessimprovement.

    Thepurposeofthissection,ManagementsDiscussionandAnalysis(MD&A), istoprovideanarrativeexplanationofour

    financialstatementsthatenhancesouroverallfinancialdisclosures,toprovidethecontextwithinwhichourfinancialinformation

    maybeanalyzed,andtoprovideinformationaboutthequalityof,andpotentialvariabilityof,ourfinancialcondition,resultsof

    operationsandcashflows.

    Unless otherwise indicated, all financial and statistical information included herein relates to our continuing operations,

    withdollaramountsexpressedinthousands(exceptforstatisticalinformation).MD&Ashouldbereadinconjunctionwiththe

    accompanyingunauditedconsolidatedfinancialstatements.

    INTRODUCTION TO MANAGEMENTS DISCUSSION AND ANALYSISPERIOD ENDED DECEMBER 31, 2014

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 2

    CONSOLIDATED FINANCIAL HIGHLIGHTS(Dollars in millions)

    FinancialResultsfortheSixMonthsEndedDecember31 2014 2013

    Operatingrevenues $ 5,843 $ 5,702

    Operatingincome $ 177 $ 112

    Operatingmargin 3.0 % 2.0%

    Operatingmargin(includingincometaxandinterestexpense) 1.9 % 0.8%

    (Loss)gainfrominvestingandfinancingactivities $ (31) $ 233

    Excessofrevenuesoverexpenses $ 141 $ 451

    OperatingEBIDA $ 408 $ 337

    Capitalexpendituresandinvestments $ 200 $ 206

    Reinvestmentratio 0.82 0.83

    SelectedOtherInformationasof December 31, 2014 June30,2014

    Totalcashandinvestments $ 4,807 $ 4,722

    Unrestrictedcashandinvestments $ 4,037 $ 3,970

    Unrestrictedcashandinvestmentsoverlong-termdebt $ 979 $ 1,001

    Daysofcashonhand 135 133

    Daysinnetaccountsreceivable 41 40

    Averageageofplant 9.1 9.2

    Operating revenues for the sixmonths endedDecember31, 2014 increased$141million, or 2.5%, as compared to the six

    monthsendedDecember31,2013,primarilyduetogrowthinInsuranceServicesandHealthServices.Operatingincomeforthe

    sixmonthsendedDecember31,2014increased$65millionoverthesameperiodinthepriorfiscalyear,primarilyduetohigher

    revenuesandcostproductivityimprovements.Operatingearningsbeforeinterest,depreciationandamortizationtotaled$408

    million,andexcessofrevenuesoverexpenseswas$141million.AsofDecember31,2014,UPMChadmorethan$4.8billionof

    cashandinvestments.

    ForthesixmonthsendedDecember31,2014:

    Hospitalmedical-surgicaladmissionsandobservationcaseswerecomparabletotheprioryear.

    Hospitaloutpatientrevenueperworkdaywascomparabletotheprioryearasincreasedvolumeswereoffsetby

    lowerreimbursementrates.

    Physicianservicerevenueperweekdayincreased5%fromthecomparableperiodintheprioryear,and

    EnrollmentinUPMCsInsuranceServicesgrewtomorethan2.5millionmembersasofJanuary1,2015.

    UPMCslossfrominvestingandfinancingactivitiesforthesixmonthsendedDecember31,2014was$31million.UPMCmadeno

    materialchangestoitsassetallocationpoliciesduringthequarterandcontinuestohavealong-termperspectivewithregardtoits

    investmentactivities.

    MANAGEMENTS DISCUSSION & ANALYSISPERIOD ENDED DECEMBER 31, 2014

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 3

    InSeptember2014, theBoardsofDirectorsofUPMCandJamesonHealthSystem inNewCastle,Pa., (Jameson), signeda

    nonbindingletterofintenttomergeJamesonintoUPMC.Jameson,UPMCandUPMCHorizonarecollaboratingtodevelopaplan

    thatwillensuregrowthandcontinuedaccesstoqualityhealthcareservicesinLawrenceandMercercounties.UPMCplans$70

    millionforthedevelopmentoffacilitiesandservicesatJameson,andhascommittedtonolessthan10yearsofplannedservices

    improvements for the region, including physician recruitment, capital improvements and coordination of clinical programs.

    Followinganexpectedsix-monthperiodofplanningandduediligenceprocesses,afinalizedaffiliationisanticipatedinMarch2015.

    InOctober2014,UPMCHamotandSafeHarborBehavioralHealth(SHBH)signedanon-bindingletterofintenttomerge

    SHBHintoUPMC.Followingaduediligenceprocess,adefinitiveagreementisexpectedinApril2015.Theplannedintegration

    supportsasharedvisiontodevelopandexpandinnovativebehavioralhealthcareandservicesfortheErieregion.UPMCHamot

    iscommittingtoprovidetheneededresourcesandexpertiseintheareasofhealthcaretechnology,informationsystems,and

    qualityimprovementtomakeSafeHarborclinicallystronger.ThemergerisintendedtoenableintegrationofSHBHintoUPMCs

    extensivebehavioralhealthservicecontinuum,investmentinnewservicesandregionalenhancements,andrecruitmentand

    retentionof talentedstaff,aswellas improveoperationalefficiencies,ensureoperatingandfinancialstability,andenhance

    capitalandadvancedtechnologyinvestments.

    InOctober2014,ChildrensHospitalofPittsburghofUPMCannouncedanagreementwithSt. JosephsChildrensHospital in

    Tampa,Fla.,toassisttheirteamwithpediatriccardiothoracicservices.SurgeonsfromtheHeartInstituteatChildrensHospitalof

    Pittsburgh are nowproviding highly specialized cardiovascular care for patients in the Tampa area. The Pittsburgh hospitals

    pediatriccardiovascularsurgeryprogramhasthelowestoverallfour-yearsurgicalmortalityrateamongallmedium-andhigh-

    volumeprograms.St.Josephs,partoftheBayCareHealthSystem, isTampasonlydedicatedchildrenshospitalandthethird

    largestchildrenshospitalinFlorida.InadditiontocollaboratingwithSt.JosephsChildrensHospitalscardiacteamonsurgicaland

    non-invasivecardiologyservices,ChildrensHospitalofPittsburghsexpertsprovidesupporttopatients,familiesandcaregiversin

    St.JosephsChildrensHospitalscardiacintensivecareunitviatelemedicine.

    InOctober2014,UPMCannouncedanagreementwithGKKlinika,aprivatehealthcarecompanyintheBalticregion,todevelop

    andco-manageanew,100-bedcancerhospitalinVilnius,Lithuania.Scheduledtoopenin2017andfundedbyGKKlinika,the

    hospital isexpectedtocareforpatientscoveredbybothprivateandpublic insurancetoenhancethequalityofoncologycare

    throughouttheBalticregion.Underthe15-yearagreement,UPMCwillassistwithprojectplanning,constructionandtraining,and

    willco-manageallclinicalandadministrativeactivitiesafterthefacilityopens.TheLithuaniangovernmentisactivelyworkingto

    encourageforeignbusinessexpansioninthatcountry,particularlyinitshighlyadvancedlifesciencessector,andexpectsthatthis

    partnershipwithUPMCwillfosterU.S.-Lithuaniarelationsandgeopoliticalstabilityintheregion.GKKlinikaisoneoftheleading

    private clinics in theBaltic region,withmore than 15 years of experience and a reputation for promoting innovativemedical

    technologytoachievebetterpatientoutcomes.UPMCswide-rangingassistancetoGKKlinikawillincludehiringandtrainingof

    staff in Pittsburgh and Vilnius, information technology planning, developing early cancer detection programs, conducting a

    genomics-testingpilotprojectandprovidingdisease-specifictreatmentalgorithms.UPMCphysiciansalsowillperiodicallyprovide

    consultsrelatedtoadvancedsurgeriesperformedatthenewhospitalandsecondopinionsviatelemedicine.

    MANAGEMENTS DISCUSSION & ANALYSISPERIOD ENDED DECEMBER 31, 2014

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 4

    ConstructioncontinuesfortheUPMCLemieuxSportsComplexinCranberryTownship,Pa.Scheduledforcompletioninthesummer

    of2015,the$70millioncomplexwillfeaturetwoicerinksandaperformancetrainingcenter.Inadditiontoservingasapractice

    rinkforthePittsburghPenguinsandahometolocalyouthhockeyandpublicskating,itisbelievedtobethefirstmedicalfacilityin

    thecountrytofocusspecificallyonhockey-relatedinjuriesandtraining.The190,000-square-footfacilityissituatedon12acres.

    BetweenNovemberandDecember2014,ChildrensHospitalofPittsburghofUPMCopenedtwoExpressCarecentersonein

    NatronaHeights,Pa.andoneinErie,Pa.Thecentersareopenafterhoursandonweekendsandfeatureboard-certifiedpediatricians

    fromChildrensHospitalofPittsburghofUPMCwhocanprovidetreatmentforminorinjuriesandillnesses.ChildrensHospitalof

    PittsburghofUPMCoperatessixotherExpressCarecentersinwesternPennsylvaniaLawrenceville,Monroeville,SouthFayette,

    WashingtonHospital,WestMifflin,andWexford.

    MANAGEMENTS DISCUSSION & ANALYSISPERIOD ENDED DECEMBER 31, 2014

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 5

    MANAGEMENTS DISCUSSION & ANALYSISPERIOD ENDED DECEMBER 31, 2014

    CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

    SixMonthsEndedDecember31,2014 (in millions)

    HealthServices

    International&Commercial

    ServicesInsuranceServices Eliminations ConsolidatedRevenues:

    Netpatientservicerevenuelessprovisionforbaddebts $3,588

    $ $ $ (642) $2,946

    Insuranceenrollmentrevenue 2,490 2,490

    Otherrevenue 292 51 117 (53) 407

    Total operating revenues $3,880 $ 51 $2,607 $ (695) $5,843

    Expenses:

    Salaries,professionalfeesandbenefits $ 2,113 $ 21 $ 109 $ (13) $2,230

    Supplies,purchasedservicesandgeneral 1,398 19 2,469 (682) 3,204

    Depreciationandamortization 226 1 5 232

    Total operating expenses 3,737 41 2,583 (695) 5,666

    Operating income $ 143 $ 10 $ 24 $ 177

    Operating margin % 3.7% 19.6% 0.9% 3.0%

    Operating margin % (including income tax and interest expense)

    2.1% 15.7% 0.9% 1.9%

    Operating EBIDA $ 368 $ 11 $ 29 $ 408

    Operating EBIDA % 9.5% 21.6% 1.1% 7.0%

    SixMonthsEndedDecember31,2013 (in millions)

    Revenues:

    Netpatientservicerevenuelessprovisionforbaddebts $3,459

    $ 53 $ $ (596) $ 2,916

    Insuranceenrollmentrevenue 2,384 2,384

    Otherrevenue 271 43 116 (28) 402

    Total operating revenues $3,730 $ 96 $2,500 $ (624) $5,702

    Expenses:

    Salaries,professionalfeesandbenefits $2,060 $ 43 $ 103 $ (14) $ 2,192

    Supplies,purchasedservicesandgeneral 1,358 39 2,386 (610) 3,173

    Depreciationandamortization 218 3 4 225

    Total operating expenses 3,636 85 2,493 (624) 5,590

    Operating income $ 94 $ 11 $ 7 $ 112

    Operating margin % 2.5% 11.5% 0.3% 2.0%

    Operating margin % (including income tax and interest expense)

    0.9% 3.1% 0.3% 0.8%

    Operating EBIDA $ 313 $ 13 $ 11 $ 337

    Operating EBIDA % 8.4% 13.5% 0.4% 5.9%

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 6

    MANAGEMENTS DISCUSSION & ANALYSISPERIOD ENDED DECEMBER 31, 2014

    Health ServicesUPMCHealthServicesincludeacomprehensivearrayofclinicalcapabilitiesconsistingofhospitals,specialtyservicelines(e.g.,

    transplantationservices,womancare,behavioralhealth,pediatrics,cancercareandrehabilitationservices),contractservices

    (emergencymedicine,pharmacyandlaboratory)andmorethan3,500employedphysicianswithassociatedpractices.Also

    included within Health Services are supporting foundations and UPMCs captive insurance programs. Hospital activity is

    monitoredinfourdistinctgroups:(i)academichospitalsthatprovideacomprehensivearrayofclinicalservicesthatincludethe

    specialty service lines listed above and serve as theprimary academic and teaching centers forUPMCand are located in

    Pittsburgh,Pa.;(ii)communityhospitalsthatprovidecoreclinicalservicesmainlytothesuburbanPittsburgh,greaterErie,and

    thegreaterAltoonapopulationsofPennsylvania;(iii)regionalhospitalsthatprovidecoreclinicalservicestocertainotherareas

    ofwesternPennsylvania;and(iv)pre-andpost-acutecarecapabilities that include:UPMCHomeCare,anetworkofhome

    healthservices,andUPMCSeniorCommunities,thefacilitiesofwhichprovideacompletenetworkofseniorlivingcapabilities

    ingreaterPittsburghandsurroundingcounties.

    HealthServicesnetpatientservicerevenueof$3.6billionincreased$129millionfromprioryeardueprimarilytoinflationary

    rateincreases.OperatingIncomeof$143millionincreased$49millionfromprioryeardueprimarilytohigherrevenuesandcost

    productivityimprovements,whichmorethanoffsetlowerinpatientvolume.

    Insurance ServicesUPMCholdsvariousinterestsinhealthcarefinancinginitiativesandnetworkcaredeliveryoperationsthathavemorethan2.5

    millionmembersasofJanuary1,2015.UPMCHealthPlanisahealthmaintenanceorganization(HMO)offeringcoveragefor

    commercial andMedicaremembers. UPMC for You is also an HMO,which is engaged in providing coverage toMedical

    Assistance&MedicareSpecialNeedsPlanbeneficiaries.UPMCHealthNetworkofferspreferredproviderorganization(PPO)

    plandesignstoserveMedicarebeneficiaries.UPMCHealthOptionsoffersPPOplandesignstoservecommercialbeneficiaries.

    UPMCforLifeisaMedicareproductlineofferedbyvariouscompanieswithintheInsuranceServicesdivision.UPMCWork

    Partners provides fully insured workers compensation, and integrated workers compensation and disability services to

    employers.CommunityCareBehavioralHealthOrganization(CommunityCare) isastate-licensed,risk-bearingPPOthat

    managesthebehavioralhealthservicesforMedicalAssistancethroughmandatorymanagedcareprogramsin39Pennsylvania

    counties,includingAlleghenyCounty.

    InsuranceServicesrevenuesof$2.6billionincreased$107millionfromprioryearprimarilyasaresultofincreasedmembership.

    InsuranceServicesexperiencedanoperatingincomeincreaseof$17millioncomparedtoprioryearprimarilyduetofavorable

    non-recurringactivity,whichmorethanoffsetlowerunderwritingmarginandhigheradministrativeexpense.

    International and Commercial ServicesThegoalofUPMCInternationalandCommercialServicesdivisionistoleverageUPMCscapabilitiestogeneratenewrevenue

    streams.Thisisaccomplishedbyexportingmedicalexpertiseandmanagementknow-howinternationally,pursuingcommercialization

    opportunitiesanddevelopingstrategicpartnershipswithindustryleaders.TheseventuresbothsupportUPMCscoremission

    andhelptorevitalizetheeconomyofwesternPennsylvania.Thefirstofthemajorinternationalventures,ISMETT,atransplantand

    specialty surgery hospital in Palermo, Italy, has performedmore than 1,500 transplants since its founding in 1999.Other

    internationalventurescurrently include twocancercenters located in Ireland,acontract toprovide remotesecond-opinion

    pathologyconsultationsforpatientsinChinaandSingapore,anationaloncologytreatmentandresearchcenterinKazakhstan,as

    wellastheAdvancedRadiosurgeryCenterofExcellenceatSanPietroFBFHospitalinRome.

    InternationalandCommercialServicesoperating incomehasbeen favorably impactedbygrowth in its internationaladvisory

    services,offsetbyinvestmentsincollaborativearrangementsthataredesignedtodevelopinnovativetechnologiesforuseinthe

    healthindustry.

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 7

    MANAGEMENTS DISCUSSION & ANALYSISPERIOD ENDED DECEMBER 31, 2014

    REVENUE METRICS HEALTH SERVICES

    Medical-Surgical Admissions and Observation VisitsInpatientactivityasmeasuredbymedical-surgicaladmissionsandobservationvisitsatUPMCshospitalsforthesixmonthsended

    December31,2014wascomparabletothesameperiodin2013.

    Outpatient Revenue per WorkdayUPMCsoutpatientactivity for thesixmonthsendedDecember31,2014asmeasuredbyaveragerevenueperworkdaywas

    comparabletothesameperiodin2013.Hospitaloutpatientactivityismeasuredonanequivalentworkday(EWD)basistoadjust

    forweekendandholidayhours.

    For the Six Months Ended December 31

    (in thousands) 2014 Change 2013

    Academic 67.5 (3%) 69.4

    Community 44.3 2% 43.5

    Regional 23.0 3% 22.4

    Total 134.8 0% 135.3

    QUARTER ENDING

    245,947

    248,853

    255,901

    265,238

    269,891 269,456

    268,912260,601

    200,000

    250,000

    300,000

    Dec-14Sep-14Jun-14Mar-14Dec-13Sep-13Jun-13Mar-13

    Trailing Twelve-Months

    For the Six Months Ended December 31

    (in thousands) 2014 Change 2013

    Academic $ 5,259 (2%) $ 5,385

    Community 2,221 3% 2,162

    Regional 1,464 7% 1,369

    Total $ 8,944 0% $ 8,916QUARTER ENDING

    $7.7

    $7.8

    $8.8$9.1

    $8.7

    $8.8$8.9$9.2

    $9.0

    $7.0

    $6.0

    $8.0

    $10.0

    Dec-14Sep-14Jun-14Mar-14Dec-13Sep-13Jun-13Mar-13

    Quarterly Average (inmillions)

    * Reclasses were made to prior year totals to conform to current year presentation

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 8

    For the Six Months Ended December 31

    (in thousands) 2014 Change 2013

    Academic $ 3,109 3% $ 3,024

    Community 2,186 7% 2,038

    Total $ 5,295 5% $ 5,062

    QUARTER ENDING

    $4.6

    $4.9

    $5.2

    $5.1

    $5.5

    $5.0 $5.0

    $4.6$4.5

    $5.5

    $4.0

    $5.0

    $6.0

    Dec-14Sep-14Jun-14Mar-14Dec-13Sep-13Jun-13Mar-13

    Quarterly Average (inmillions)

    MANAGEMENTS DISCUSSION & ANALYSISPERIOD ENDED DECEMBER 31, 2014

    REVENUE METRICS HEALTH SERVICES (CONTINUED)

    Physician Service Revenue per WeekdayUPMCsphysicianactivityforthesixmonthsendedDecember31,2014asmeasuredbyaveragerevenueperweekdayincreased

    5%fromthecomparableperiodin2013.Physicianservicesactivityismeasuredonaweekdaybasis.

    Sources of Patient Service RevenueThegrosspatientservicerevenuesofUPMCarederivedfromthird-partypayerswhichreimburseorpayUPMCfortheservicesit

    provides topatients coveredby suchpayers.Third-partypayers include the federalMedicareProgram, the federal and state

    MedicalAssistanceProgram(Medicaid),HighmarkBlueCrossBlueShield(Highmark)andotherthird-partyinsurerssuchas

    healthmaintenanceorganizationsandpreferredproviderorganizations.Thefollowingtableisasummaryofthepercentageofthe

    subsidiaryhospitalsgrosspatientservicerevenuebypayer.

    Six Months Ended December 31

    2014 2013

    Medicare 44% 43%

    Medicaid 15% 15%

    Highmark 18% 20%

    UPMC Insurance Services 10% 10%

    National Insurers 7% 7%

    Other 6% 5%

    Total 100% 100%

    * Reclasses were made to prior year totals to conform to current year presentation

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 9

    MANAGEMENTS DISCUSSION & ANALYSISPERIOD ENDED DECEMBER 31, 2014

    QUARTER ENDING

    95%

    90%

    85%

    91.590.7

    91.6 91.9 91.490.6 90.7 90.0

    80%

    100%

    Dec-14Sep-14Jun-14Mar-14Dec-13Sep-13Jun-13Mar-13

    Medical Expense RatioUPMCInsuranceServicesMedicalExpenseRatiocontinuestoremainstable.

    Asof January 1, 2015 January1,2014 December 31, 2014 December31,2013

    CommercialHealth 552,789 510,233 503,831 478,867

    Medicare 141,805 123,453 125,917 126,028

    Medicaid 278,364 252,164 268,842 252,708

    BehavioralHealth 733,893 713,683 740,781 769,086

    Sub-TotalHealthProducts 1,706,851 1,599,533 1,639,371 1,626,689

    WorkPartnersandLifeSolutions 423,363 391,801 424,159 386,873

    AncillaryProducts 203,943 182,655 190,925 203,137

    Evolent 198,913 115,793 118,269 46,780

    TotalMembership 2,533,070 2,289,782 2,372,724 2,263,479

    *January 1 statistics are estimations and are subject to subsequent adjustment. January 1, 2014 has been revised to reflect actual enrollment statistics.

    Trailing Twelve-Months

    QUARTER ENDING

    2,130,044

    2,238,2622,263,479

    2,302,7222,328,031

    2,348,3882,372,724

    2,103,164

    2,000,000

    2,500,000

    2,250,000

    Dec-14Sep-14Jun-14Mar-14Dec-13Sep-13Jun-13Mar-13

    2,289,782

    2,533,070

    OPERATING METRICS - INSURANCE SERVICES

    MembershipMembershipintheUPMCInsuranceServicesDivisionincreasedto2,372,724asofDecember31,2014,a5%increaseversus

    prioryear.FromJanuary1,2014toJanuary1,2015,membershipincreased11%to2,533,070.

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 10

    MANAGEMENTS DISCUSSION & ANALYSISPERIOD ENDED DECEMBER 31, 2014

    Unrestricted Cash and Investments Over Long Term DebtUnrestrictedcashandinvestmentsoverlongtermdebtdecreasedby$22millionascomparedtoJune2014.

    Days in Net Accounts ReceivableConsolidateddaysinAccountsReceivablecontinuetoremainstableduetoUPMCsrigorousproceduresinthisarea.Thedecrease

    inSeptember2014isprimarilytheresultofcollectiontimingrelatedtomedicalassistancecapitationpayments.

    QUARTER ENDING

    39

    37 3736

    38

    40

    34

    41

    30

    40

    50

    Dec-14Sep-14Jun-14Mar-14Dec-13Sep-13Jun-13Mar-13

    By Division as of December 31

    2014 Balance

    Days

    2014 2013

    Health Services $ 963 54 48

    Insurance Services 338 24 23

    ICSD 20 91 63

    Consolidated $ 1,321 41 37

    For the Six Months Ended December 31

    2014 Change 2013

    Operating Income $ 177 58% $112

    Depreciation and Amortization

    231 3% 225

    Operating EBIDA $ 408 21% $337

    Trailing Twelve Months EBIDA

    KEY FINANCIAL INDICATORS (Dollars in millions)

    Operating Earnings before Interest, Depreciation and AmortizationOperatingEBIDAforthesixmonthsendedDecember31,2014increasedascomparedtothesixmonthsendedDecember31,2013.

    FOUR QUARTERS ENDING

    $624

    $556$603

    $654 $662 $644$682

    $716

    $0

    $100

    $200

    $300

    $400

    $500

    $600

    $700

    $800

    Dec-14Sep-14Jun-14Mar-14Dec-13Sep-13Jun-13Mar-13

    QUARTER ENDING

    $664 $734

    $1,001$1,061

    $419

    $382

    $494

    $979

    $200

    $400

    $600

    $800

    $1,000

    $1,200

    Dec-14Sep-14Jun-14Mar-14Dec-13Sep-13Jun-13Mar-13

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 11

    Market ShareThechartbelowshowsthechangeinUPMCsestimatedinpatientmarketshareforfiscalyears2013and2014(July1throughJune

    30),byservicearea(1).Forfiscalyear2014,estimatedmarketshareisdisplayedincludingdischargesforUPMCAltoona.Thisisthe

    mostrecentmarketsharedatacurrentlyavailable.

    UPMC INPATIENT MEDICAL-SURGICAL MARKET SHARE JULY 1 THROUGH JUNE 30

    DischargesThefollowingtablesshowthechangeinmedical-surgicaldischargesfromallhospitals,aswellasUPMChospitals(includingUPMC

    Altoonainfiscalyear2014),withineachserviceareaforthesameperiod.Thisisthemostrecentdischargedatacurrentlyavailable.

    TOTAL MEDICAL-SURGICAL DISCHARGES WITHIN THE SERVICE AREAS (ALL HOSPITALS) FY 2014 AND FY 2013

    July1throughJune30 FY 14 FY13 PercentChange

    AlleghenyCounty 142,327 147,638 (3.6%)

    SouthwesternPennsylvania(10-CountyRegion) 306,707 319,003 (3.9%)

    WesternPennsylvania(29-CountyRegion) 459,342 475,184 (3.3%)

    UPMC MEDICAL-SURGICAL DISCHARGES WITHIN THE SERVICE AREAS FY 2014 AND FY 2013

    July1throughJune30 FY 14 FY13 PercentChange

    AlleghenyCounty 86,251 90,483 (4.7%)

    SouthwesternPennsylvania(10-CountyRegion) 127,787 132,168 (3.3%)

    WesternPennsylvania(29-CountyRegion) 188,351 176,974 6.4%

    (1) UPMCs three service areas are (1) Allegheny County, (2) a 10-county region including Allegheny, Armstrong, Beaver, Butler, Fayette, Greene, Indiana, Lawrence, Washington and Westmoreland counties and (3) a 29-county region which also includes Bedford, Blair, Cambria, Cameron, Centre, Clarion, Clearfield, Crawford, Elk, Erie, Forest, Huntingdon, Jefferson, McKean, Mercer, Potter, Somerset, Venango, and Warren counties.

    Western PA (29-County)Southwestern PA (10-County)Allegheny County

    FY 2013

    FY 2014

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    61% 61%

    41% 42%37%

    41%

    MANAGEMENTS DISCUSSION & ANALYSISPERIOD ENDED DECEMBER 31, 2014

    MA

    RK

    ET

    SH

    AR

    E

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 12

    ASSET AND LIABILITY MANAGEMENT

    DuringthesixmonthsendedDecember31,2014,UPMCsinvestmentportfolioreturned0.2%.AsofDecember31,2014,UPMC

    utilized181externalinvestmentmanagers,including32traditionalmanagers,26hedgefundmanagersand123privateequity

    managers.UPMCsinvestmentportfoliohasalong-termperspectiveandhasgeneratedannualizedreturnsof6.2%,9.8%and

    8.6%forthetrailingone-,three-andfive-yearperiods.AsofDecember31,2014,56%ofUPMCsinvestmentportfoliocouldbe

    liquidatedwithinthreedays.

    UPMCsannualizedcostofcapitalduringtheperiodwas3.71%.Thiscostofcapitalincludestheaccrualofinterestpayments,

    theamortizationoffinancingcostsandoriginalissuediscountorpremium,theongoingcostsofvariableratedebtandthecash

    flowimpactofderivativecontracts.AsofDecember31,2014,theinterestratesonUPMCslong-termdebtwereapproximately

    84%fixedand16%variableaftergivingeffecttoderivativecontracts.Annualizedinterestcostforthevariableratedebtforthe

    periodaveraged0.69%.Theannualizedinterestcostforthefixedratedebtwas4.24%.UPMChasarevolvingcreditfacility

    whichexpiresinJuly2019andhasaborrowinglimitof$500million.AsofDecember31,2014,UPMChadapproximately$69

    millionoflettersofcreditoutstandingunderthecreditfacilityleaving$431millionavailabletofundoperatingandcapitalneeds,

    ofwhichnonewasdrawn.

    The table below compares reported Investing and Financing Activity for the six months ended December 31, 2014 and

    2013bytype.

    Investing and Financing Activity by TypeSixMonthsEndedDecember31 2014 2013

    (in thousands)

    Realizedgains $ 108,380 $ 129,187

    Interestanddividends,netoffees 25,335 22,869

    Realizedinvestmentrevenue $ 133,715 $ 152,056

    Unrealizedgainsonderivativecontracts 893 12,896

    Otherunrealized(losses)gains (99,804) 140,523

    Impairmentoncostbasisinvestments (7,700)

    Investmentrevenue $ 27,104 $ 305,475

    Gain(loss)onextinguishmentofdebt 189 (6,152)

    Interestexpense (58,124) (66,402)

    (Loss) gain from investing and financing activities $ (30,831) $ 232,921

    MANAGEMENTS DISCUSSION & ANALYSISPERIOD ENDED DECEMBER 31, 2014

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 13

    Sources and Uses of CashUPMCsprimarysourceofoperatingcashisthecollectionofrevenuesandrelatedaccountsreceivable.AsofDecember31,2014,

    UPMChadapproximately$505millionofcashandcashequivalentsonhandtofundoperationsandcapitalexpenditures,and

    borrowingavailabilityunderthecreditfacilitywas$431million,noneofwhichwasdrawn.

    OperatingEBIDAwas$408millionforthesixmonthsendedDecember31,2014,comparedto$337millionforthesixmonths

    endedDecember31,2013.Netcashprovidedbyoperatingactivitieswas$193millioninthesixmonthsendedDecember31,

    2014comparedto$379millionprovidedbyoperatingactivitiesinthesixmonthsendedDecember31,2013drivenbyincreases

    inEBIDAanddecreasesinoperatingactivity.

    KeysourcesandusesofcashfrominvestingactivitiesforthesixmonthperiodendedDecember31,2014includecapitalexpenditures

    of$190million,aswellas$10million toacquireownership interests inand fundbusinesses.Majorcapitalprojects included

    constructionoftheLunaGaragetoservicetheShadysidecampus,renovationstoUPMCPresbyterianRadiology,andconstruction

    ofMarioLemieuxSportsPerformanceCenterinCranberryTownship.MajorInformationServicesprojectsincludedenhancements

    thatareadvancingUPMCs leadingclinician-centriccomputingenvironment, technology infrastructure that supportsUPMCs

    diversifieddigitalenvironment,investmentsinenterprisedataanalytics,investmentsinclinician-centricsoftwareapplications,and

    othertechnologiesthataretransformingtheconsumerexperienceacrossthespectrumofhealthcare.

    Additionally,contributionsinthesixmonthperiodendedDecember31,2014,tothedefinedbenefitpensionplanof$69million

    weremadetomaintainitsfundedstatusandtoavoidpayingexcesspremiumstothePensionBenefitGuarantyCorporation.

    MANAGEMENTS DISCUSSION & ANALYSISPERIOD ENDED DECEMBER 31, 2014

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 14

    UTILIZATION STATISTICSPERIOD ENDED DECEMBER 31, 2014

    Thefollowingtable,presentsselectedconsolidatedstatisticalindicatorsofmedical-surgical,psychiatric,sub-acuteandrehabilitation

    patientactivityforthesixmonthsendedDecember31,2014and2013andyearsendedJune30,2014and2013.

    SixMonthsEndedDecember31 TwelveMonthsEndedJune30

    2014 2013 2014 2013

    LicensedBeds 5,114 5,106 5,118 4,736

    BEDS IN SERVICEMedical-Surgical 3,738 4,105 4,071 3,816

    Psychiatric 417 446 441 412

    Rehabilitation 180 161 166 152SkilledNursing 94 127 127 127

    TotalBedsinService 4,429 4,839 4,805 4,507

    PATIENT DAYSMedical-Surgical 487,512 498,866 1,001,333 966,729

    Psychiatric 66,611 70,908 141,997 133,189Rehabilitation 30,892 25,001 52,410 47,616SkilledNursing 13,094 17,059 34,290 35,598

    TotalPatientDays 598,109 611,834 1,230,030 1,183,132

    ObservationDays 49,712 48,880 97,486 88,395AverageDailyCensus 3,521 3,591 3,637 3,484

    ADMISSIONS AND OBSERVATION CASESMedical-Surgical 96,796 99,190 197,386 187,326ObservationCases 38,035 36,076 72,505 61,527

    Subtotal 134,831 135,266 269,891 248,853

    Psychiatric 5,195 5,407 10,659 8,827Rehabilitation 2,174 1,859 3,860 3,630SkilledNursing 1,049 1,506 2,963 2,971

    TotalAdmissionsandObservationCases 143,249 144,038 287,373 264,281OverallOccupancy 79% 74% 76% 77%

    AVERAGE LENGTH OF STAYMedical-Surgical 5.0 5.0 5.1 5.2Psychiatric 12.8 13.1 13.3 15.1Rehabilitation 14.2 13.4 13.6 13.1SkilledNursing 12.5 11.3 11.6 12.0

    OverallAverageLengthofStay 5.7 5.7 5.7 5.8EmergencyRoomVisits 356,274 350,399 691,809 643,091

    TRANSPLANTS (PITTSBURGH)Liver 44 42 92 81Kidney 101 99 191 169AllOther 179 165 351 345

    Total 324 306 634 595

    TRANSPLANTS (ISMETT)Liver 41 31 52 64Other 25 27 49 65

    Total 66 58 101 129

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 15

    OUTSTANDING DEBTPERIOD ENDED DECEMBER 31, 2014 (IN THOUSANDS)

    Issuer OriginalBorrower SeriesAmount

    Outstanding

    AlleghenyCountyHospital

    DevelopmentAuthority

    UPMCHealthSystem 1997B $ 43,859

    UPMCHealthSystem 1998B 4,911

    UPMC 2003B 3,391

    UPMC 2007A 92,525

    UPMC 2007B 65,000

    UPMC 2008A 106,980

    UPMC 2008B 140,639

    UPMC 2008Notes 89,875

    UPMC 2009A 350,406

    UPMC 2010A 248,724

    UPMC 2010B 100,000

    UPMC 2010C 50,000

    UPMC 2010D 150,000

    UPMC 2010F 95,000

    UPMC 2011A 95,578

    MonroevilleFinanceAuthority UPMC 2012 372,866

    UPMC 2013B 71,730

    UPMC 2014B 52,377

    PennsylvaniaEconomic

    DevelopmentFinancingAuthority

    UPMC 2013A 125,373

    UPMC 2014A 338,056

    ErieCountyHospitalAuthority HamotHealthFoundation 2006 23,607

    HamotHealthFoundation 2007 30,102

    HamotHealthFoundation 2010A 14,985

    HamotHealthFoundation 2010C 2,250

    PennsylvaniaHigherEducational

    FacilitiesAuthority

    UPMC 2010E 279,668

    BlairCountyHospitalAuthority Altoona 1998A 4,222

    None UPMC 2011B 100,000

    UPMC Swapliabilities 15,224

    UPMC UPMCEastloan 71,000

    Various-CapitalLeasesandLoans 101,122

    Total $ 3,239,470

    Includes original issue discount and premium and other. Source: UPMC Records

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 16

    DEBT SERVICE COVERAGE RATIO(Dollars in Thousands)

    TrailingTwelve-MonthPeriodEnded December31,2014

    NetIncome $ 257,813

    ADJUSTED BY:NetUnrealizedLossesfromPeriod1 28,676DepreciationandAmortization1 460,933(Gain)lossonDefeasanceofDebt1 (189)AssetImpairment1 12,551LossFromDivestitureBeaconHospital1 106,000RealizedInvestmentImpairments2 (16,232)InterestExpense 120,921

    RevenuesAvailableforDebtService $ 970,473

    HistoricalDebtServiceRequirements2007MTI $ 246,530DebtServiceCoverageRatio2007MTI 3.94X

    HistoricalDebtServiceRequirementsAllDebtandLeases $ 294,595DebtServiceCoverageRatioAllDebtandLeases 3.29X

    LIQUIDITY RATIO AS OF DECEMBER 31, 2014

    DEBT COVENANT CALCULATIONSPERIOD ENDED DECEMBER 31, 2014

    UnrestrictedCashandInvestments $ 4,036,812MasterTrustIndentureDebt $ 2,960,220Unrestricted Cash to MTI Debt 1.36

    (1) Non-Cash. (2) Reflects ultimate realization of previously impaired cost-based investments.

    Iherebycertifytothebestofmyknowledgethat,asofDecember31,2014,UPMCisincompliancewiththeapplicablecovenants

    containedinthefinancingdocumentsforthebondslistedonthecoverhereofandallapplicablebanklinesofcreditandnoEvent

    ofDefault(asdefinedinanyrelatedfinancingdocument)hasoccurredandiscontinuing.

    C.TalbotHeppenstall,Jr.TreasurerUPMC

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 17

    UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTSFOR THE PERIOD ENDED DECEMBER 31, 2014

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 18

    The Board of Directors UPMC Pittsburgh, Pennsylvania

    WehavereviewedtheconsolidatedfinancialinformationofUPMCandsubsidiaries,whichcomprisetheconsolidatedbalance

    sheetasofDecember31,2014,andtherelatedconsolidatedstatementsofoperationsandchangesinnetassetsforthethree-

    monthandsix-monthperiodsendedDecember31,2014and2013andcashflowsforthesix-monthperiodsendedDecember31,

    2014and2013.

    Managements Responsibility for the Financial InformationManagementisresponsibleforthepreparationandfairpresentationofthefinancialinformationinconformitywithU.S.generally

    acceptedaccountingprinciples;thisincludesthedesign,implementation,andmaintenanceofinternalcontrolsufficienttoprovide

    a reasonablebasis for thepreparationand fair presentationof interimfinancial information in conformitywithU.S. generally

    acceptedaccountingprinciples.

    Auditors ResponsibilityOurresponsibilityistoconductourreviewinaccordancewithauditingstandardsgenerallyacceptedintheUnitedStatesapplicable

    to reviewsof interimfinancial information.Areviewof interimfinancial informationconsistsprincipallyofapplyinganalytical

    proceduresandmakinginquiriesofpersonsresponsibleforfinancialandaccountingmatters.Itissubstantiallylessinscopethan

    anauditconductedinaccordancewithauditingstandardsgenerallyacceptedintheUnitedStates,theobjectiveofwhichisthe

    expressionofanopinionregardingthefinancialinformation.Accordingly,wedonotexpresssuchanopinion.

    ConclusionBasedonourreview,wearenotawareofanymaterialmodificationsthatshouldbemadetotheconsolidatedfinancialinformation

    referredtoaboveforittobeinconformitywithU.S.generallyacceptedaccountingprinciples.

    Pittsburgh, Pennsylvania February 5, 2015

    REVIEW REPORT OF INDEPENDENT AUDITORS

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 19

    December 31 2014

    June302014

    CURRENT ASSETSCashandcashequivalents $ 504,843 $ 449,539

    Accountsreceivable,netofallowanceforuncollectableaccountsof $124,689atDecember31,2014and$121,740atJune30,2014 790,750 694,090Otherreceivables 529,903 569,102

    Othercurrentassets 169,287 165,287

    Totalcurrentassets 1,994,783 1,878,018

    Board-designated,restricted,trusteedandotherinvestments 4,302,472 4,272,766

    Beneficialinterestsinfoundationsandtrusts 457,295 461,504

    Netproperty,buildingsandequipment 3,668,547 3,674,841

    Otherassets 330,212 295,238

    Totalassets $ 10,753,309 $ 10,582,367

    CURRENT LIABILITIES

    Accountspayableandaccruedexpenses $ 421,769 $ 411,250

    Accruedsalariesandrelatedbenefits 498,623 551,752

    Currentportionofinsurancereserves 393,769 405,777

    Currentportionoflong-termobligations 231,537 325,519

    Othercurrentliabilities 316,831 291,672

    Totalcurrentliabilities 1,862,529 1,985,970

    Long-termobligations 3,007,933 2,804,541

    Pensionliability 41,296

    Long-terminsurancereserves 268,788 264,565

    Othernoncurrentliabilities 183,905 171,204

    Totalliabilities 5,323,155 5,267,576

    Unrestrictednetassets 4,780,047 4,657,270

    Restrictednetassets 650,107 657,521

    Totalnetassets 5,430,154 5,314,791

    Totalliabilitiesandnetassets $ 10,753,309 $ 10,582,367

    See accompanying notes

    CONSOLIDATED BALANCE SHEETS(UNAUDITED)(IN THOUSANDS)

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 20

    SixMonthsEndedDecember31 ThreeMonthsEndedDecember31

    2014 2013 2014 2013UNRESTRICTED NET ASSETS

    Netpatientservicerevenue:Patientservicerevenue(netofcontractual allowancesanddiscounts) $3,062,189 $3,035,967 $1,541,966 $1,514,445Provisionforbaddebts (116,381) (119,536) (58,845) (55,365)

    Netpatientservicerevenuelessprovision forbaddebts 2,945,808 2,916,431 1,483,121 1,459,080Insuranceenrollmentrevenue 2,490,158 2,383,638 1,244,456 1,205,084Otherrevenue 406,974 402,199 202,064 216,033

    Totaloperatingrevenues 5,842,940 5,702,268 2,929,641 2,880,197

    Expenses:Salaries,professionalfeesand employeebenefits 2,229,870 2,191,862 1,115,068 1,097,060Supplies,purchasedservicesandgeneral 3,204,584 3,173,876 1,611,124 1,613,453Depreciationandamortization 231,601 224,661 117,236 112,161

    Totaloperatingexpenses 5,666,055 5,590,399 2,843,428 2,822,674Operatingincome(excludinginherent contributionUPMCAltoonaaffiliation andincometaxexpense) 176,885 111,869 86,213 57,523InherentcontributionUPMCAltoonaaffiliation 107,257 (12,605)Assetimpairmentcharge (101) (101) Incometaxexpense (5,346) (1,505) (3,592) (1,894)

    After-taxoperatingincome $171,438 $217,621 $82,520 $43,024

    Investingandfinancingactivities:Investmentrevenue 27,104 305,475 38,039 153,471Interestexpense (58,124) (66,402) (29,582) (33,691)Gain(loss)onextinguishmentofdebt 189 (6,152) 368 (5,963)

    (Loss)gainfrominvestingandfinancingactivities (30,831) 232,921 8,825 113,817

    Excessofrevenuesoverexpenses 140,607 450,542 91,345 156,841Otherchangesinunrestrictednetassets (17,830) 4,325 8,929 5,351

    Increaseinunrestrictednetassets 122,777 454,867 100,274 162,192

    RESTRICTED NET ASSETS

    Contributionsandotherchanges 1,630 (948) 1,441 (1,757)Netrealizedandunrealizedgains(losses) onrestrictedinvestments 1,101 6,174 (407) 5,420Assetsreleasedfromrestrictionforoperations andcapitalpurchases (5,936) (5,558) (3,104) (2,342)Net(decrease)increaseinbeneficialinterests infoundations (4,209) 14,415 (6,913) 14,724

    (Decrease)increaseinrestrictednetassets (7,414) 14,083 (8,983) 16,045

    Increaseinnetassets 115,363 468,950 91,291 178,237Netassets,beginningofperiod 5,314,791 4,616,706 5,338,863 4,907,419

    Netassets,endofperiod $5,430,154 $5,085,656 $5,430,154 $5,085,656

    See accompanying notes

    CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS(UNAUDITED)(IN THOUSANDS)

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 21

    CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)

    SixMonthsEndedDecember31 2014 2013

    OPERATING ACTIVITIESIncreaseinnetassets $ 115,363 $ 468,950Adjustmentstoreconcileincreaseinnetassetstonetcashprovidedbyoperatingactivities:Depreciationandamortization 231,601 224,661Provisionforbaddebts 116,381 119,536Changeinbeneficialinterestinfoundations 4,209 (14,415)Changeinpensionliability (41,296) (53,092)Restrictedcontributionsandinvestmentrevenue (2,731) (5,226)Unrealizedlosses(gains)oninvestments 99,804 (140,523)Realizedgainsoninvestments (108,380) (129,187)Netchangeinnon-alternativeinvestments (1,188) 91,905InherentcontributionUPMCAltoonaaffiliation (107,257)Changesinoperatingassetsandliabilities:Accountsreceivable (173,842) (89,755)Othercurrentassets (4,000) (61,473)Accountspayableandaccruedliabilities (42,610) 9,016Insurancereserves (7,785) 59,159Othercurrentliabilities 25,159 8,661Othernoncurrentliabilities 12,701 (2,307)Otheroperatingchanges (30,119)

    Netcashprovidedbyoperatingactivities 193,267 378,653

    INVESTING ACTIVITIES

    Purchaseofpropertyandequipment(netofdisposals) (178,860) (173,609)Cashacquired(aspartofacquisitions) 19,538Investmentsinjointventures (10,000) (17,386)Netchangeininvestmentsdesignatedasnontrading 3,002 (20,337)Netchangeinalternativeinvestments (22,050) 12,645Netchangeinotherassets (35,964) (36,220)

    Netcashusedininvestingactivities (243,872) (215,369)

    FINANCING ACTIVITIESRepaymentsoflong-termobligations (584,137) (136,026)Borrowingsoflong-termobligations 687,315 208,257Restrictedcontributionsandinvestmentincome 2,731 5,226

    Netcashprovidedbyfinancingactivities 105,909 77,457

    Netchangeincashandcashequivalents 55,304 240,741Cashandcashequivalents,beginningofperiod 449,539 203,118

    Cashandcashequivalents,endofperiod $ 504,843 $ 443,859

    SUPPLEMENTAL INFORMATIONCapitalleaseobligationsincurredtoacquireassets $ 11,226 $ 18,072

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 22

    1. BASIS OF PRESENTATION

    UPMCisaPennsylvanianonprofitcorporationandisexemptfromfederal incometaxpursuanttoSection501(a)oftheInternal

    RevenueCode(theCode)asanorganizationdescribedinSection501(c)(3)oftheCode.HeadquarteredinPittsburgh,Pennsylvania,

    UPMCisoneoftheworlds leading integrateddeliveryandfinancingsystems.UPMCcomprisesnonprofitandfor-profitentities

    offering medical and health-care-related services, including health insurance products. Closely affiliated with the University of

    Pittsburgh(University)andwithsharedacademicandresearchobjectives,UPMCpartnerswiththeUniversitysSchoolsofthe

    HealthSciencestodeliveroutstandingpatientcare,traintomorrowshealthcarespecialistsandbiomedicalscientists,andconduct

    groundbreakingresearchonthecausesandcourseofdisease.

    Theaccompanyingunauditedinterimconsolidatedfinancialstatementshavebeenpreparedinaccordancewithgenerallyaccepted

    accountingprinciples intheUnitedStates(GAAP) for interimfinancial information.Accordingly, theydonot includeallof the

    informationand footnotes requiredbyGAAP forcompletefinancial statements. In theopinionofmanagement,all adjustments

    considerednecessaryforafairpresentationhavebeenincludedandareofanormalandrecurringnature.Theaccompanyingunaudited

    interimconsolidatedfinancialstatementsincludetheaccountsofUPMCanditssubsidiaries.Intercompanyaccountsandtransactions

    areeliminatedinconsolidation.Forfurtherinformation,refertotheauditedconsolidatedfinancialstatementsandnotestheretoasof

    andfortheyearendedJune30,2014.

    2. NEW ACCOUNTING PRONOUNCEMENTS

    InMay 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2014-09,

    Revenue from Contracts with Customers,toclarifytheprinciplesforrecognizingrevenueandtoimprovefinancialreportingby

    creatingcommonrevenuerecognitionguidanceforGAAPandInternationalFinancialReportingStandards.Thecoreprinciple

    ofthenewguidanceisthatanentityshouldrecognizerevenuetodepictthetransferofpromisedgoodsorservicestocustomers

    inanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.

    ASU2014-09iseffectiveforannualreportingperiodsbeginningafterDecember15,2016,includinginterimperiodswithinthat

    reportingperiod.Earlyapplicationisnotpermitted.Anentityshouldapplytheamendmentsinthisupdateusingeitherafull

    retrospectiveapplicationoramodifiedretrospectiveapplication.Underthefullretrospectiveapplication,anentitywillapply

    thestandardtoeachpriorreportingperiodpresented.Underthemodifiedretrospectiveapplication,anentityrecognizesthe

    cumulativeeffectofinitiallyapplyingthenewstandardasanadjustmenttotheopeningbalanceofretainedearningsatthedate

    ofinitialapplication.Revenueinperiodspresentedbeforethatdatewillcontinuetobereportedunderguidanceineffectbefore

    the change.UPMC is evaluating this newguidance andhasnot yet determinedwhich approach itwill adopt to apply the

    amendmentsinASU2014-09ortheimpactthattheadoptionofthisupdatewillhaveonitsfinancialstatements.

    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS)

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 23

    3. NET PATIENT SERVICE REVENUE AND ACCOUNTS RECEIVABLE

    Theprovisionforbaddebtsisbaseduponmanagementsassessmentofhistoricalandexpectednetcollectionsconsidering

    historicalbusinessandeconomicconditions,trendsinhealthcarecoverage,andothercollectionindicators.UPMCrecordsa

    significantprovisionforbaddebts intheperiodservicesareprovidedrelatedtoself-paypatients, includingbothuninsured

    patientsandpatientswithdeductibleandcopaymentbalancesdueforwhichthird-partycoverageexistsforaportionoftheir

    balance. Periodically throughout the year,management assesses the adequacyof the allowance for uncollectible accounts

    baseduponhistoricalwrite-offexperience.Theresultsofthisreviewarethenusedtomakeanymodificationstotheprovision

    for bad debts to establish an appropriate allowance for uncollectible accounts. Accounts receivable are written off after

    collectioneffortshavebeenfollowedinaccordancewithinternalpolicies.

    Netpatientservicerevenueisreportedatestimatednetrealizableamountsintheperiodinwhichservicesareprovided.The

    majorityofUPMCsservicesarerenderedtopatientsunderMedicareandMedicalAssistanceprograms.Reimbursementunder

    theseprogramsisbasedonacombinationofprospectivelydeterminedratesandactualcosts.AmountsreceivedunderMedicare

    andMedicalAssistanceprogramsaresubjecttoreviewandfinaldeterminationbyprogramintermediariesortheiragents.

    ForthesixmonthsendedDecember31,2014and2013,thepercentageofpatientservicerevenue,netofcontractualallowances,

    derivedfromthirdpartypayersandself-paypatientsisasfollows:

    SixMonthsEndedDecember31 2014 2013

    Thirdparty 94% 94%

    Self-pay 6% 6%

    100% 100%

    LawsandregulationsgoverningtheMedicareandMedicalAssistanceprogramsareextremelycomplexandsubjecttointerpretation.

    Compliancewithsuchlawsandregulationsaresubjecttogovernmentreviewandinterpretationaswellassignificantregulatory

    actionincludingfines,penalties,andexclusionfromtheMedicareandMedicalAssistanceprograms.Asaresult,thereisat

    leastareasonablepossibilitythattherecordedestimatesmaychange.

    4. FAIR VALUE MEASUREMENTS

    AsofDecember31,2014,UPMCheldcertainassetsthatarerequiredtobemeasuredatfairvalueonarecurringbasis.These

    includecashandcashequivalentsandcertainboard-designated, restricted, trusteed,andother investmentsandderivative

    instruments.UPMCs alternative investments aremeasured using either the cost or equitymethod of accounting and are

    thereforeexcludedfromthefairvaluehierarchytablespresentedherein.Thevaluationtechniquesusedtomeasurefairvalue

    arebaseduponobservableandunobservableinputs.Observableinputsreflectmarketdataobtainedfromindependentsources,

    whileunobservableinputsaregenerallyunsupportedbymarketactivity.Thethree-tierfairvaluehierarchy,whichprioritizesthe

    inputsusedinmeasuringfairvalue,includes:

    Level1: Quotedpricesforidenticalassetsorliabilitiesinactivemarkets.

    Level2: Quotedpricesforsimilarinstrumentsinactivemarkets;quotedpricesforidenticalorsimilarinstrumentsinmarketsthat

    arenotactive;andmodel-drivenvaluationswhoseinputsareobservableorwhosesignificantvaluedriversareobservable.

    Level3: Unobservableinputsthataresupportedbylittleornomarketactivityandthataresignificanttothefairvalueofthe

    assetsorliabilities.

    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS)

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 24

    The following tables representUPMCs fair value hierarchy for its financial assets and liabilitiesmeasured at fair value on a

    recurringbasisasofDecember31,2014andDecember31,2013.Theinterestrateswapsarevaluedusinginternalmodels,which

    areprimarilybasedonmarketobservableinputsincludinginterestratecurves.Whenquotedmarketpricesareunobservable

    for fixed income securities, quotes from independent pricing vendors based on recent trading activity and other relevant

    informationincludingmarketinterestratecurves,referencedcreditspreadsandestimatedprepaymentrateswhereapplicable

    areusedforvaluationpurposes.TheseinvestmentsareincludedinLevel2andincludecorporatefixedincome,government

    bonds,andmortgageandasset-backedsecurities.Thenetassetvaluehasbeenderivedusingquotedmarketpricesforthe

    underlyingsecurities.

    FAIR VALUE MEASUREMENTS AS OF DECEMBER 31, 2014 TotalCarrying Level1 Level2 Level3 Amount

    ASSETSFixedincome $ 399,619 $ 872,708 $ $ 1,272,327Domesticequity 380,841 642 381,483Internationalequity 583,605 101,281 684,886Publicrealestate 56,186 56,186Commodities 29,152 29,152Long/shortequity 65,012 53,296 118,308Absolutereturn 35,320 35,320Derivativeinstruments(interestrateswap) 7,422 7,422

    Totalassets $ 1,514,415 $ 1,070,669 $ $ 2,585,084

    LIABILITIESDerivativeinstruments(interestrateswap) (15,224) (15,224)

    Totalliabilities $ $ (15,224) $ $ (15,224)

    FAIR VALUE MEASUREMENTS AS OF JUNE 30, 2014 TotalCarrying Level1 Level2 Level3 Amount

    ASSETSFixedincome $ 275,732 $ 933,637 $ $ 1,209,369Domesticequity 369,942 785 370,727Internationalequity 613,452 110,881 724,333Publicrealestate 53,995 53,995Commodities 36,006 36,006Long/shortequity 63,045 32,663 95,708Absolutereturn 35,283 35,283Derivativeinstruments 7,274 7,274

    Totalassets $ 1,412,172 $ 1,120,523 $ $ 2,532,695

    LIABILITIESDerivativeinstruments (15,969) (15,969)

    Totalliabilities $ $ (15,969) $ $ (15,969)

    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS)

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 25

    5. FINANCIAL INSTRUMENTS

    SubstantiallyallofUPMCsinvestmentsindebtandequitysecuritiesareclassifiedastrading.ThisclassificationrequiresUPMC

    to recognizeunrealizedgainsand lossesonsubstantiallyall of its investments indebtandequity securitiesas investment

    income in the consolidated statements of operations and changes in net assets. UPMCs investments in debt and equity

    securitiesthataredonor-restrictedassetsaredesignatedasnontrading.Unrealizedgainsandlossesondonor-restrictedassets

    arerecordedaschangesinrestrictednetassetsintheconsolidatedstatementsofoperationsandchangesinnetassets.Gains

    and lossesonthesalesofsecuritiesaredeterminedbytheaveragecostmethod.Realizedgainsand lossesare included in

    investmentrevenueintheconsolidatedstatementsofoperationsandchangesinnetassets.

    Investmentsinequitysecuritieswithreadilydeterminablefairvaluesandallinvestmentsindebtsecuritiesaremeasuredatfair

    valueusingquotedmarketpricesormodel-drivenvaluations.Cashandcashequivalentsandinvestmentsrecordedatfairvalue

    aggregate$3,082,505and$2,974,960atDecember31,2014andJune30,2014,respectively.

    Investments in limitedpartnerships that invest innonmarketable securitiesareprimarily recordedat cost if theownership

    percentageislessthan5%andarereportedusingtheequitymethodofaccountingiftheownershippercentageisgreaterthan

    5%.These investmentsareperiodicallyevaluated for impairment.AsofDecember31,2014andJune30,2014, respectively,

    UPMChadinvestmentsrecordedatcostof$824,817and$853,183andatequityof$151,497and$133,860.

    Thefairvalueoflong-termdebtatDecember31,2014andJune30,2014,was$3,402,946and$3,276,249respectively,based

    onmarketpricesasestimatedusingmodeldrivenvaluationsthatwouldberepresentativeofaLevel2classificationwithinthe

    fairvaluehierarchy.

    6. DERIVATIVE INSTRUMENTS

    UPMCusesderivativefinancialinstrumentstomanageexposuresonitsdebtandinvestments.Byusingderivativestomanage

    theserisks,UPMCexposesitselftocreditriskandmarketrisk.Creditriskisthefailureofthecounterpartytoperformunderthe

    termsofthederivatives.Whenthefairvalueofaderivativeispositive,thecounterpartyowesUPMC,whichcreatescreditriskfor

    UPMC.Whenthefairvalueofaderivativeisnegative,UPMCowesthecounterpartyand,therefore,itdoesnotincurcreditrisk.

    UPMCminimizesthecreditriskinderivativesbyenteringintotransactionsthatrequirethecounterpartytopostcollateralforthe

    benefitofUPMCbasedonthecreditratingofthecounterpartyandthefairvalueofthederivative.IfUPMChasaderivativeina

    liabilityposition,thecounterpartybearsUPMCscreditriskandfairmarketvaluescouldbeadjusteddownward.Marketriskisthe

    effectonthevalueofafinancialinstrumentthatresultsfromachangeininterestrates.Themarketriskassociatedwithinterest

    ratechangesismanagedbyestablishingandmonitoringparametersthatlimitthetypesanddegreeofmarketriskthatmaybe

    undertaken.Managementalsomitigatesriskthroughperiodicreviewsoftheirderivativepositions inthecontextoftheir total

    blendedcostofcapital.

    UPMCmaintainsinterestrateswapprogramsoncertainofitsdebtinordertomanageitsinterestraterisk.Tomeetthisobjective,

    UPMCenteredintovariousinterestrateswapagreements.Thenotionalamountundereachinterestrateswapagreementis

    reducedoverthetermoftherespectiveagreementtocorrespondwithreductionsinvariousoutstandingbondseries.

    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS)

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 26

    ThefollowingtablesummarizesUPMCsinterestrateswapagreements:

    NotionalAmountat

    Swap MaturityDate UPMCPays UPMCReceives Dec. 31, 2014 June30,2014

    Floatingtofixed 2025 3.6% 68%one-month $ 113,710 $ 121,095 LIBOR

    Basis 2021 SIFMAIndex1 67%three-month 46,430 46,430 LIBORplus.2077%

    Basis 2037 SIFMAIndex1 67%three-month 46,095 46,095 LIBORplus.3217%

    $ 206,235 $ 213,620

    1 The SIFMA Index is a 7-day high-grade market index comprised of tax-exempt variable rate demand obligations.

    UPMChasalsoenteredintoequity-relatedderivativeinstrumentstomanagetheassetallocationinitsinvestmentportfolio.

    UndertheequityindexswapagreementsUPMCpaysafixedincome-likereturnandreceivesanequity-likereturn.Thenotional

    amountoftheseswapsisbaseduponUPMCstargetassetallocation.

    ThefollowingtablesummarizesUPMCsequityswapagreements:

    NotionalAmountat

    MaturityDate UPMCPays UPMCReceives Dec. 31, 2014 June30,2014

    2014 Three-monthLIBOR S&P500TotalReturn 100,000 plus.3500% Index

    2015 Three-monthLIBOR MSCIAllCountryWorld 75,000 75,000 minus.1100% DailyTotalReturn1

    2015 Three-monthLIBOR S&P500TotalReturn 100,000 plus.2600% Index

    $ 175,000 $ 175,000

    1 The MSCI All Country World Index is a free-float adjusted market capitalization index that is designed to measure the equity market performance of developed and emerging markets.

    Pursuanttomasternettingarrangements,UPMChastherighttooffsetthefairvalueofamountsrecognizedforderivatives,

    includingtherighttoreclaimorobligationtoreturncashcollateralfrom/tocounterparties.ThefairvaluesoftheCompanys

    derivativefinancialinstrumentsarepresentedbelow,representingthegrossamountsrecognizedasofDecember31,2014and

    June30,2014whicharenotoffsetbycounterpartyorbytypeofitemhedged:

    December 31, 2014 June30,2014

    Otherassets $ 7,422 $ 7,274Long-termobligations (15,224) (15,969)

    $ (7,802) $ (8,695)

    Theaccountingforchangesinthefairvalue(i.e.,unrealizedgainsorlosses)ofaderivativedependsonwhetherithasbeen

    designatedandqualifiesaspartofahedgingrelationshipandfurther,onthetypeofhedgingrelationship.NoneofUPMCs

    derivativesoutstandingasofDecember31,2014andJune30,2014aredesignatedashedginginstrumentsandassuch,changes

    in fairvaluearerecognized in investingandfinancingactivitiesas investmentgain(loss) intheconsolidatedstatementsof

    operationsandchangesinnetassets.

    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS)

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 27

    Theeffectsofchangesinthefairvalueofthederivativesontheconsolidatedstatementsofoperationsandchangesinnetassets

    forthethreeandsixmonthsendedDecember31,2014and2013areasfollows:

    TypeofDerivative

    ClassificationofUnrealizedGain(Loss)inExcessofRevenuesoverExpenses

    SixMonthsEndedDecember31

    ThreeMonthsEndedDecember31

    2014 2013 2014 2013

    Interestratecontracts Investmentgain(loss) $ 873 $ 2,131 $ (382) $ 1,820Equityindexcontracts Investmentgain 20 10,838 8,934 10,930

    $ 893 $ 12,969 $ 8,552 $ 12,750

    UPMCsderivativescontainprovisionsthatrequireUPMCsdebttomaintainaninvestmentgradecreditratingfromcertainmajor

    creditratingagencies.IfUPMCsdebtweretofallbelowinvestmentgrade,itwouldbeinviolationoftheseprovisions,andthe

    counterpartiestothederivativescouldrequestpaymentordemandimmediateandongoingfullovernightcollateralizationon

    derivativesinnetliabilitypositions.Theaggregatefairvalueofallderivativeswithcredit-risk-relatedcontingentfeaturesthatare

    inaliabilitypositionatDecember31,2014andJune30,2014is$15,763and$16,413,respectively,forwhichUPMChasposted

    collateralof$0.Ifthecredit-risk-relatedcontingentfeaturesunderlyingtheseagreementsweretriggeredtothefullestextenton

    December31,2014,UPMCwouldberequiredtopost$16,094ofcollateraltoitscounterparties.

    7. PENSION PLANS

    UPMCand itssubsidiariesmaintaindefinedbenefitpensionplans(thePlans),definedcontributionplansandnonqualified

    pensionplansthatcoversubstantiallyallofUPMCsemployees.BenefitsunderthePlansvaryandaregenerallybaseduponthe

    employeesearningsandyearsofparticipation.

    ThecomponentsofnetperiodicpensioncostforthePlansareasfollows:

    SixMonthsEnded ThreeMonthsEnded December31 December31 2014 2013 2014 2013

    Servicecost $ 45,400 $ 41,058 $ 22,700 $ 20,529Interestcost 33,832 31,222 16,916 15,611Expectedreturnonplanassets (63,769) (49,404) (31,885) (24,702)Recognizednetactuarialloss 11,689 15,316 5,845 7,658Amortizationofpriorservicecost(credit) 228 (364) 114 (182)

    Netperiodicpensioncost $ 27,380 $ 37,828 $ 13,690 $ 18,914

    DuringthesixmonthsendedDecember31,2014and2013,UPMCmadecontributionstothePlansof$68,500and$90,920,

    respectively.

    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS)

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 28

    8. CONTINGENCIES

    UPMCisinvolvedinlitigationandrespondingtorequestsforinformationfromgovernmentalagenciesoccurringinthenormal

    courseofbusiness.Certainofthesemattersareinthepreliminarystagesandlegalcounselisunabletoestimatethepotential

    effect, ifany,upontheresultsofoperationsorfinancialpositionofUPMC.Managementbelievesthatthesematterswillbe

    resolvedwithoutmaterialadverseeffectonUPMCsresultsofoperationsorfinancialposition.However,theultimateoutcome

    andeffectonUPMCsfinancialstatementsareunknown.

    InDecember2010,aproposedclassactionwasfiledinUnitedStatesDistrictCourtfortheWesternDistrictofPennsylvaniaby

    RoyalMileCompany,Inc.,andcertainrelatedentitiesandpersonsagainstUPMCandHighmark.Inthatactiontheplaintiffsalleged

    thatUPMCandHighmarkhadconspiredtoallowHighmarktochargeexcessive,above-marketpremiumsforhealthinsurance.The

    complaintcloselytrackstheallegationsmadebyWestPennAlleghenyHealthSystem(WPAHS)ina2009lawsuitthatwas

    ultimatelydismissed.Theactionhasbeendesignatedasrelated to theWPAHS lawsuitandhasbeenassignedto thesame

    DistrictCourtJudge.AlthoughthecasehadbeenstayedpendingthedispositionofpetitionsforcertioraribeingfiledintheWPAHS

    lawsuit,theDistrictCourtJudgeliftedthestayfollowingthedenialofthepetitionsforcertiorari.TheplaintiffsfiledanAmended

    Complaint inAugust2012,whichincludedtwoadditionalantitrustcountsagainstUPMCbasedonitsallegedconspiracywith

    Highmark.InSeptember2012,bothUPMCandHighmarkfiledmotionstodismissplaintiffsAmendedComplaint.

    OnSeptember27,2013,theCourtgrantedUPMCsmotiontodismisstheplaintiffsComplaint,givingplaintiffsthirtydaystofile

    aSecondAmendedComplaint.OnOctober29,2013,RoyalMilefiledamotionforleavetofileaThirdAmendedComplaint.The

    CourtheldargumentonthismotioninApril2014.UPMCcontinuestobelievethattheplaintiffsallegationshavenomeritand

    expects that thematterwill be resolvedwithout anymaterial adverse effect onUPMCs results of operations or financial

    position.OnAugust21,2014,theCourtdeniedleavetotheplaintiffstofiletheAmendedComplaint.Plaintiffssubsequentlyfiled

    anewAmendedComplaint.OnoraboutOctober30,2014,UPMCmovedtodismissthatAmendedComplaint.UPMCsmotion

    ispending.

    InMarchandApril2009,severalrelatedclassactionlawsuitswerefiledagainstUPMCandcertainofitsaffiliatesintheFederal

    DistrictCourtfortheWesternDistrictofPennsylvania(DistrictCourt)andtheCourtofCommonPleasforAlleghenyCounty,

    Pennsylvania.TheFederalDistrictCourtcasesallegeviolationsofTheFairLaborStandardsAct(FLSA)onthebasisthatcertain

    employeeswerenotpaidforallhoursthattheyworkedandwerenotproperlypaidovertimeand,further,thattheseactionsalso

    violatedtheEmployeeRetirementIncomeSecurityAct(ERISA)andtheRacketeerInfluencedandCorruptOrganizationsAct

    (RICO).ThestatecourtactionsallegeviolationsofthePennsylvaniaMinimumWageAct,TheWagePaymentandCollectionAct

    andcommonlawonthesamefactualbasisnotedabove.Thelawsuitsseekrecoveryofallegedunpaidwagesandbenefitsandother

    monetarydamagesandcosts.In2012,theCourtintwoofthefederalclassactionlawsuitsenteredanOrdergrantingUPMCs

    motiontodecertifythecollectiveactionthathadbeenconditionallyenteredatanearlierdate.ThePlaintiffsfiledanunopposed

    MotionforVoluntaryDismissalwithPrejudiceforthepurposesofappealinbothcases.TheDistrictCourtsignedagenericOrder

    ofDismissalwithPrejudiceinbothcaseswhichincludesthenamedPlaintiffs.ThecasewasappealedtotheThirdCircuit,which

    dismissedbasedonlackofjurisdiction.Plaintiffscounselhasre-filedasimilarcollectiveactioncaseintheWesternDistrictof

    Pennsylvania,againstvariousUPMCaffiliatesandexecutivesusingdifferentnamedplaintiffs.However,thePlaintiffscontinueto

    allegethattheywerenotpaidforworkperformedduringunpaidmealbreaksinviolationoftheFairLaborStandardsAct.UPMC

    andcertainofitsaffiliatesfiledaMotiontodismisstheactionbasedoncollateralestoppel.PlaintiffscounselfiledaMotionfor

    PartialSummaryJudgmentrelyingonrepresentationsmadeduringadepositionconductedintheearliercase.TheWesternDistrict

    denied the collective actionbut allowed the claims from the six (6) namedplaintiffs to proceed.All partieswere ordered to

    mediation.Instead,allplaintiffsaccepteddefendantsPresbyterianShadyside,HorizonandMcKeesportsofferofjudgmentinthe

    amountof$22dollarswithlimitedattorneysfeesandcoststobeestablished.

    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS)

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 29

    InJanuary2012,UPMCHamotwasservedwithaComplaintinfederalcourtnamingitasadefendantinaquitamaction,along

    with a privatephysicianpractice.UPMCHamotmoved todismiss theComplaint inApril 2012.TheRelator opposedUPMC

    HamotsmotiontodismissinJune2012.InNovember2012,theCourtgrantedUPMCHamotsmotioninpartanddenieditinpart.

    TheRelatorfiledanAmendedComplaint.UPMCHamotmovedtodismisstheAmendedComplaintinJanuary2013.InJuly2013,

    theCourtdeniedUPMCHamotsmotiontodismiss.UPMCHamotansweredtheComplaintonSeptember18,2013.Discoveryis

    ongoing.TheoutcomeandultimateeffectonUPMCsfinancialstatementscannotbedeterminedatthistime.

    InJuly2012,aclassactionsuitwasfiledagainstUPMCandotherdefendantsintheAlleghenyCountyCourtofCommonPleas

    allegingPennsylvaniawageandhourviolations.TheComplaintallegesthatRNstaffmemberswithaBSNwerenotcreditedthe

    paydifferentialtowhichtheywereentitledandseeksdamagesforthatdifferentialaswellasliquidateddamagesandinterest.

    UPMCfiled preliminary objections thatwere sustained in part and overruled in part, resulting in the dismissal of all named

    defendantsexceptUPMC.UPMCalsofiledanAnswerwithNewMatter,denyingallmaterialallegations.Plaintiffshavefiledan

    AmendedComplaintnamingeachUPMChospitalasadefendant.TheplaintiffsalsofiledaMotiontoCertifytheclass,which

    UPMC,etal.opposed.TheoutcomeandultimateeffectonUPMCsfinancialstatementscannotbedeterminedatthistime.

    InSeptember2012,asuitwasfiledagainstUPMC,MaximStaffingSolutions,Inc.(Maxim)andMedicalSolutions,LLC,inthe

    AlleghenyCountyCourtofCommonPleas(CommonPleasCourt)atGD12-016165,allegingthedefendantsactednegligentlyin

    failingtopreventaMaximemployee,staffedatUPMCbetweenMarch2008andMay2008,fromspreadingtheHepatitisCvirus

    (HCV).UPMCnotifiedthePennsylvaniaAttorneyGeneralthatthisemployeewasterminatedfromUPMCforviolationsrelated

    toattemptstoswitchsyringes.Additionally,inSeptember2012,aPennsylvaniaresidentfiledaputativeclassactionsuitagainst

    UPMCandMaximintheCommonPleasCourtatGD12-016636,allegingthatthedefendantsnegligentlyfailedtoproperlyhire,

    investigate,andretainand/orsupervisetheemployee.Thiscase,whichdoesnotallegecontractionofHCV,broughttheactionon

    behalfofaputativeclassconsistingofpersonswhowerepotentiallyandunwittinglyexposedtothebloodborneillnessesofthe

    employeewhileheworkedatUPMC.InOctober2012,otherswhohaveallegedlycontractedHCVfiledaputativeclassaction

    againstUPMCandMaximinCommonPleasCourtatGD12-020264,allegingthatUPMCactednegligentlyinfailingtoprevent

    approximately2,000formerpatientsandtheirspousesandsignificantothersfrombeingexposedtoHCV.Thesetwoclassactions

    havebeenlimitedtoonlyphysicalinjuryfromtheneedlestickforHCVtesting.InDecember2012,aKansashusbandandwifeand

    otherplaintiffsfiledthreeputativeactionsinCommonPleasCourt,atGD12-024324,againstUPMC,Maximandathirddefendant

    alsoallegingthatUPMCactednegligentlyinfailingtopreventformerpatientsandtheirspousesandsignificantothersfrombeing

    exposedtoHCV.UPMChasfiledpreliminaryobjectionstoalloftheseactions.Thesecaseshavebeendismissed,buttheplaintiffs

    filedamotiontoreconsider.Afourthcase,atGD14-000899,hasbeenfiledbytheestateofaKansaspatientsimilartothethree

    thathavealreadybeendismissed.UPMCfiledpreliminaryobjectionstothisnewcaseandexpectsthatittoowillbedismissed.A

    tentativesettlementoftheclassactionhasbeenreachedwithsomedetailstobedeterminedwhichincludetimingofpaymentand

    whethereachclaimantwillbeentitledtoreceivesettlementproceedsorwhetheronlyclaimantswhoaffirmativelyfileaclaimform

    willreceivepaymentoftheagreeduponamountof$750perperson.Maximhasagreedtopay50%ofanysettlementamount.The

    rangeofpaymentattributabletoUPMCisanticipatedtobefromapproximately$150to$350.

    InSeptember2013,aComplaintwasfiledwiththeNationalLaborRelationsBoard,Region6againstUPMCPresbyterianShadyside

    (PUH).TheComplaintwasamendedinJanuary2014toaddUPMCasanotherdefendant.TheAmendedComplaint,stemming

    frommultipleunfairlaborpracticechargesfiledbytheServiceEmployeesInternationalUnion(SEIU)HealthcarePennsylvania

    allegesthatUPMCPUHengagedinvariousactivitiesthatviolatetheNationalLaborRelationsAct.Inresponse,theNationalLabor

    RelationsBoard(NLRB)isseekingreliefintheformof:aworkplaceposting,tobedisplayedfor120days,asdeterminedbythe

    proceedings;apublicreadingofthepostingtoUPMCemployees;anOrdergrantingtheSEIUfullaccesstopublicareasatPUH

    duringnon-workinghoursforthepurposeofspeakingtoemployees;anOrdergrantingtheSEIUpermissiontopostitsnoticesand

    distributeliteratureatPUH;therepaymentofvarioustaxesrelatedtotheterminationoffouremployeesidentifiedinthecomplaint;

    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS)

  • UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 30

    andotherundefined relief asdeemedappropriate.UPMCanticipates that the undefined reliefwill includebackpayand

    reinstatementforthefourterminatedemployees.Afive-weekhearingwasconductedbeforeanadministrativelawjudge.Inhis

    opinion,theALJrecommendedreinstatementforalloftheterminatedemployees,plusfullbackpay,onehundredandtwenty

    (120)daynoticepostingandapublicreadingoftheposting.ThematteriscurrentlyonappealtotheNationalLaborRelations

    Board.TheultimateoutcomeandeffectonUPMCsfinancialstatementsareunknown.

    In February2014, aputative class actionagainstUPMCandUPMCMcKeesportwasfiled in theCourtofCommonPleasof

    AlleghenyCounty, Pennsylvania, atGD 14-003285, asserting claims for negligence, breachof privacy, andbreachof implied

    contractinconnectionwithadatabreachatUPMCinvolvingthepersonallyidentifiableinformationofcertainUPMCemployees.

    Thepurportedclassconsistsofformer,current,andfutureUPMCemployees.UPMChasfiledpreliminaryobjectionschallenging

    thesubstantivebasisoftheclaimsandisawaitingarulingonthosepreliminaryobjections.Theultimateoutcomeandeffecton

    UPMCsfinancialstatementsareunknown.

    OnOctober9,2012,UPMCreceivedaCivilInvestigativeDemand(CID)fromtheDepartmentofJustice(DOJ)thatsought

    recordsrelatingtoforty(40)surgicalproceduresperformedbetweenJanuary25,2008andJune24,2010.UPMCtimelyresponded

    tothatCID.InNovember2013,theDOJadvisedUPMCthattheCIDhadbeenservedaspartofDOJsinvestigationofallegations

    assertedbyaRelatorinafederalquitamlawsuitfiledunderseal.Subsequenttothatdisclosure,DOJprovidedUPMCscounsel

    witharedactedcopyoftheRelatorscomplaintbutinsistedthateventhislimitedinformationremainedsubjecttothesealorder

    andcouldnotbedisseminatedfurther.OnFebruary27,2014,DOJservedasecondCIDthatsoughtadditionalrecords.UPMChas

    beenrespondingtothatsecondCIDandotherwisecooperatingwithDOJ,whichhasnottodatedecidedwhethertointervenein

    thequitamlawsuit.Meanwhile,thelawsuitremainsundersealbyorderofcourt.Giventhelimitationsoninformationavailableat

    thistime,UPMCisunabletoofferanypredictionastotheoutcomeorfinancialimpactoftheDOJscivilinquiryortheassociated

    quitamaction.

    OnSeptember3,2014,HighmarkInc.andKeystoneHealthPlanWest,Inc.suedUPMCandvariousUPMChospitalsandphysician

    practicesintheCourtofCommonPleasofAlleghenyCounty,Pennsylvania,atGD14-15441,assertingclaimsforbreachofcontract

    anddeclaratoryjudgmentrelatedtooncologybilling.InOctober2014,thedefendantsfiledpreliminaryobjectionstotheComplaint.

    Arulingonthoseobjectionsispending.TheultimateoutcomeandeffectonUPMCsfinancialstatementsareunknown.

    As ofDecember 31, 2014, included in accounts receivable is approximately $118,000 related to billings toHighmark for the

    provisionofcertainoncologyservicescoveredundertheHighmarkcontracts.BeginningonApril 1,2014,UPMCbelievesthat

    HighmarkmateriallybreachedthosecontractsbyunilaterallyreducingtheratesreimbursedtoUPMCfortheseservicesbelowthe

    prevailingfeeschedulesprovidedforinthecontracts.UPMC,whichhascompliedwiththosecontracts,hasinitiatedlegalclaims

    againstHighmarktorecovertheamountsdueandowingandbelievesthattheentireamountofthedisputedaccountsreceivable

    fromHighmarkisfullycollectible.

    9. SUBSEQUENT EVENTS

    ManagementevaluatedeventsoccurringsubsequenttoDecember31,2014throughFebruary5,2015,thedatetheunaudited

    interimconsolidatedfinancialstatementsofUPMCwereissued.Duringthisperiod,therewerenosubsequenteventsrequiring

    recognitionintheconsolidatedfinancialstatementsthathavenotbeenrecorded.

    CertainofthecommercialcontractsbetweenHighmarkandUPMCexpiredonDecember31,2014.UPMCisoperatingunder

    theprovisionsoftheparallelconsentdecreesenteredintoinJune2014whichgovernthetransitionintothenewhealthcare

    environmentthatemergedwhenmostofHighmarkscontractsforin-networkservicesatUPMCexpired.Theconsentdecrees

    usherinaneweraofrobustcompetitioninthewesternPennsylvaniaproviderandhealthinsurancemarkets.

    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS)