UPMC Unaudited Quarterly Disclosure
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Transcript of UPMC Unaudited Quarterly Disclosure
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UPMC Unaudited Quarterly Disclosure
For the Period Ended December 31, 2014
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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
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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
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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
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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
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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
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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%
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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.
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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UPMC UNAUDITED QUARTERLY DISCLOSURE DECEMBER 2014 | 17
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTSFOR THE PERIOD ENDED DECEMBER 31, 2014
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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
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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)
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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)
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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
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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)
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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)
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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)
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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)
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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)
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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)
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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)
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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)
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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)