Bowen family theory
CASE TOPICS OUTLINE
1. St. Jude Children’s Research Hospital/ALSAC
A. Primary Objective
B. Sources of Capital
C. Reporting Practices
2. Universal Health Services
A. Investor-Owned Hospital
B. Debt Including Leases
3. Comparison
Hospitals are an industry in which both not-for-profits and investor-owned
facilities operate. The sources of capital available to the not-for-profits include
charitable contributions and debt offerings—unless they are governmental, in
which case, higher taxes are also an alternative. Debt availability is always, in part,
a function of performance, and just as failures have arisen in both sectors, about
one-third of the investor-owned hospitals have been described as losing money. Of
interest is how can one effectively evaluate such an industry, with this type of
diversity in organizational forms and capital availability? A necessary prerequisite
to such an evaluation is to have a firm understanding of how charitable
contributions are presented.
St. Jude Children’s Research Hospital/ALSAC has the mission of finding cures for
children with catastrophic diseases through research and treatment. For the fiscal
year 1999, this entity reported total assets of $221,664,232 and income of
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5.3-1
$177,071,890. A Web site at http://www.stjude.org, as well as Guidestar’s listing,
references a Form 990 (Return of Organization Exempt from Income Tax) filing,
availability of audited financial statements upon request, and information that the
hospital has 2,100 employees and 350 volunteers. Founded in 1962, the
organization seeks funds
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from contributions and grants for unrestricted operating expenses, specific
projects, buildings, and endowments. More than 4,000 patients are seen annually,
with a hospital maintaining 56 beds. The Form 990, Part III states that the hospital
provided 15,231 inpatient days of care during the fiscal year and patients made
40,982 clinic visits. ALSAC is the American Lebanese Syrian Associated Charities,
Inc., the fund-raising arm of St. Jude Children’s Research Hospital. It reported 1999
total assets of $1,007,699,320 and income of $274,123,399. This organization reports
the number of employees as 565 and the number of volunteers as 800,000. With its
sole focus on the hospital, ALSAC’s self-description explains that no child has ever
been turned away due to an inability to pay for treatment and explains key
accomplishments in the research area achieved by St. Jude’s research and
treatment of children with catastrophic diseases. What is borne out by the example
of St. Jude is the fact that a review of the Form 990 filed for the fiscal year ending
6/30/99 indicates in Part VI the names of related organizations: ALSAC and St. Jude
Hospital Foundation, both of which are tax exempt. To gain a sense of capital
availability to a not-for-profit entity, affiliated entities must be considered. In
addition, the role of volunteers is a source of human capital not effectively
captured within the framework of financial statements for not-for-profits, as
reflected in the Form 990 for the fiscal year ending 6/30/99 for ALSAC, which states
in Part VI:
Unpaid volunteers have made significant contributions of their time, principally in
fund-raising activities. The value of these services is not recognized in the financial
statements since it is not susceptible to an objective measurement or valuation and
because the activities of these volunteers are not subject to the operating
supervision and control present in an employer/employee relationship.
Hence, as one evaluates capital sources and uses by not-for-profits, care is needed
to consider affiliated organizations’ role, total contributions, and the effect of
volunteerism on the comparability between not-for-profit and investor-owned
operations.
Universal Health Services, Inc. filed its 10-K on March 28, 2001, for the calendar
year 2000, which includes comparative information for 1999. Analysts have
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described the company as the most aggressive company in the industry over the
1999–2001 time frame in making acquisitions, particularly of not-for-profit
operations and investor-owned operations experiencing losses. The company is
praised for it high operating leverage, the relatively small number of shareholders
relative to the magnitude of total revenue, and stock price as a multiple of
earnings. The company operates 59 hospitals and, as of 1999, had an average
number of licensed beds of 4,806 at acute care hospitals and 1,976 at behavioral
health centers, with patient days of 963,842 and 444,632, respectively. Of interest is
a commentary on the competition found in the company’s filing:
Competition
In all geographical areas in which the Company operates, there are other hospitals
which provide services comparable to those offered by the Company’s hospitals,
some of which are owned by governmental agencies and supported by tax
revenues, and others of which are owned by nonprofit corporations and may be
supported to a large extent by endowments and charitable contributions. Such
support is not available to the Company’s hospitals. Certain of the Company’s
competitors have greater financial resources, are better equipped and offer a
broader range of services than the Company. Outpatient treatment and diagnostic
facilities, outpatient surgical centers and freestanding ambulatory surgical centers
also impact the healthcare marketplace. In recent years, competition
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among healthcare providers for patients has intensified as hospital occupancy
rates in the United States have declined due to, among other things, regulatory and
technological changes, increasing use of managed care payment systems, cost
containment pressures, a shift toward outpatient treatment and an increasing
supply of physicians. The Company’s strategies are designed, and management
believes that its facilities are positioned, to be competitive under these changing
circumstances. (Source: 10-K filed 3/28/2001)
Financial information is provided in Tables 5.3-1 and 5.3-2 for both the not-for-
profit and the investor-owned hospitals.
Table 5.3-1: Financial Comparisons of the Not-for- Profit Entities
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Fiscal Year Ended 1999
St. Jude Children’s
Research Hospital Form 990*
American Lebanese Syrian Associated
Charities, Inc. (ALSAC) Form 990*
Contributions, gifts, grants and similar amounts received: Direct public support
$91,978,426 $231,793,748
Indirect public support 2,906,934
Government contributions (grants)
31,469,447
Program service revenue, including government fees and contracts (i.e., health insurance revenue)
46,034,710
Accounts receivable 24,217,029 4,230,764
Pledges receivable 23,604,748
Allowance for doubtful accounts
9,363,328
Program service expenses 99,282,906
Program service expenses: Research
87,225,830
5,471,186
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Fiscal Year Ended 1999
St. Jude Children’s
Research Hospital Form 990*
American Lebanese Syrian Associated
Charities, Inc. (ALSAC) Form 990*
Program service expenses: Education and training
Program service expenses: Medical Services
93,735,602
Reconciliation of revenue, gains, and other support to audited numbers: net unrealized gains on investments
−4,023,815 65,891,269
Deferred grant revenue 1,857,628 (Statement 5)
Support from American Lebanese Syrian Associated Charities, Inc.
91,978,426 (Statement 7)
91,978,426 (paid per Statements 4, 6)
Excluded contributions 2,746,295 (Statement 1)
Excess or (deficit) for the year −10,933,191 120,521,982
Net assets or fund balances at end of year
199,707,440 994,501,910
Temporarily restricted 15,715,890
Permanently restricted 14,000,000 247,147,826
Total liabilities 21,956,792 7,017,192
Fiscal Year Ended 1999
St. Jude Children’s
Research Hospital Form 990*
American Lebanese Syrian Associated
Charities, Inc. (ALSAC) Form 990*
Schedule of deferred debits & credits by contract (FAS 116 adjustment noted to result in this deferred revenue)
157,628
The GuideStar.org Web site (http://www.guidestar.org) provides access to Forms 990 in .PDF
format.
Table 5.3-2: Universal Health Services, Inc.’s Financial Excerpts*
Income Statements (in thousands) Reported 1999 Calendar Year
Net revenues $2,042,380
Operating charges 1,913,346
Components:
Salaries, wages, and benefits 793,529
Provision for doubtful accounts 166,139
Lease and rental expense 49,029
Interest expense, net 26,872
Net income 77,775
*
Income Statements (in thousands) Reported 1999 Calendar Year
Total assets 1,497,973
Total liabilities 856,362
Total retained earnings 482,960
Capital stock 306
Paid-in capital in excess of par 158,345
The 10-K filing as of 3/28/2001 at EDGAR (http://www.sec.gov/edgar.shtml) provides financial
statement information for 2000 and 1999.
Requirement A: Recording Revenue
1. What is meant by the reference in Table 5.3-1 to an FAS 116 adjustment?
2. How are contributions recorded? Is there a distinction between pledges
receivable and accounts receivable?
*
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3. Are there…
