UNM SANDOVAL REGIONAL MEDICAL CENTER, INC. (A … · activities of UNM Sandoval Regional Medical Center (the Medical Center) as of and for the years ended June 30, 2016, 2015, and

UNMSANDOVALREGIONALMEDICALCENTER,INC.

(AComponentUnitoftheUniversityofNewMexico)

FINANCIALSTATEMENTS

JUNE30,2016AND2015


(AComponentUnitoftheUniversityofNewMexico)OfficialRosterJune30,2016

BOARDOFDIRECTORS

PaulRoth,MD Chairperson(Termexpires6/30/17,Regentappointed)Albuquerque,NMCharlotteGarcia Member(Termexpires6/30/18,Countyappointed)Albuquerque,NMSteveMcKernan Member(Termexpires6/30/16,Regentappointed)Albuquerque,NMMichaelRichards,MD Member(Termexpires6/30/16,Regentappointed)Albuquerque,NMEleanaZamora,MD Member(Termexpires6/30/18,Regentappointed)Albuquerque,NMMaxineVelasquez Member(Termexpires6/30/17,Countyappointed)Albuquerque,NMJerryGeist Member(Termexpires6/30/16,Regentappointed)Albuquerque,NMDonnieLeonard Member(Termexpires6/30/17,Countyappointed)Albuquerque,NMJoannaBoothe Member(Termexpires6/30/18,Countyappointed)Albuquerque,NM


(AComponentUnitoftheUniversityofNewMexico)OfficialRoster(continued)

June30,2016

ADMINISTRATIVEOFFICERS

RobertG.Frank,Ph.D. President–UniversityofNewMexicoPaulRoth,M.D. Chancellor–UNMHealthSciencesCenter Dean,SchoolofMedicine–UNMHealthSciencesCenterAvaLovell SeniorExecutiveFinancialOfficer–UNMHealthSciences

CenterSteveMcKernan ChiefExecutiveOfficer–UNMHospitals ChiefOperatingOfficer–UNMHealthSystem EllaWatt ChiefFinancialOfficer–UNMHospitals ChiefFinancialOfficer–UNMHealthSystemMichaelRichards,M.D. ExecutivePhysician‐in‐ChiefJamieSilva‐Steele ChiefExecutiveOfficer–SandovalRegionalMedicalCenterPaulEchols,MD ChiefMedicalOfficer–SandovalRegionalMedicalCenterPamelaDemarest ChiefNursingOfficer–SandovalRegionalMedicalCenterDarleneFernandez ChiefFinancialOfficer–SandovalRegionalMedical

Center

UNMSANDOVALREGIONALMEDICALCENTER,INC.(AComponentUnitoftheUniversityofNewMexico)

TABLEOFCONTENTS PageReportofIndependentAuditors 1‐2Management’sDiscussionandAnalysis 3‐16FinancialStatements:

StatementsofNetPosition 17 StatementsofRevenues,ExpensesandChangesinNetPosition 18

StatementsofCashFlows 19‐20 NotestoFinancialStatements 21‐42ReportofIndependentAuditorsonInternalControlOver FinancialReportingandonComplianceandOther MattersBasedonanAuditofFinancialStatements PerformedinAccordancewithGovernmentAuditingStandards 43‐44ScheduleofFindingsandResponses 45SummaryScheduleofPriorAuditFindings 46ExitConference 47

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REPORTOFINDEPENDENTAUDITORSUNMSandovalRegionalMedicalCenter,Inc.BoardofDirectorsandMr.TimothyKeller,NewMexicoStateAuditorReportontheFinancialStatements

We have audited the accompanying financial statements of Sandoval Regional Medical Center, Inc.(SRMCortheMedicalCenter),acomponentunitoftheUniversityofNewMexico,StateofNewMexico,operatedbytheUniversityofNewMexicoHealthSciencesCenterClinicalOperations,whichcomprisethestatementsofnetpositionasofJune30,2016and2015,andtherelatedstatementsofrevenues,expenses,andchangesinnetpositionandcashflowsfortheyearsthenended,andtherelatednotestothefinancialstatements.Management’sResponsibilityfortheFinancialStatements

ManagementisresponsibleforthepreparationandfairpresentationofthesefinancialstatementsandbudgetcomparisoninaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica;thisincludesthedesign,implementation,andmaintenanceofinternalcontrolrelevanttothepreparation and fair presentation of financial statements that are free frommaterialmisstatement,whetherduetofraudorerror.Auditor’sResponsibility

Our responsibility is to express an opinion on these financial statements based on our audits.WeconductedourauditsinaccordancewithauditingstandardsgenerallyacceptedintheUnitedStatesofAmericaandthestandardsapplicabletofinancialauditscontainedinGovernmentAuditingStandards,issued by the Comptroller General of the United States. Those standards require that we plan andperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreefrommaterialmisstatement.Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthefinancialstatements.Theproceduresselecteddependontheauditor’sjudgment,includingtheassessmentoftherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments,theauditorconsidersinternalcontrolrelevanttotheentity’spreparationandfairpresentationofthefinancialstatementsinordertodesignauditproceduresthatare appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of theMedical Center’s internal control. Accordingly, we express no such opinion. Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessof significant accounting estimates made by management, as well as evaluating the overallpresentationofthefinancialstatements.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinions.

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UNMSandovalRegionalMedicalCenter,Inc.BoardofDirectorsandMr.TimothyKeller,NewMexicoStateAuditorOpinions

Inouropinion,thefinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,thefinancial position of the Medical Center as of June 30, 2016 and 2015, and the changes in itsfinancial position and its cash flows for the years then ended in accordance with accountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.

EmphasisofMatter

As discussed in Note 1, the financial statements present only the Medical Center and are notintendedtopresentfairlythefinancialpositionoftheUniversityofNewMexicoasofJune30,2016and 2015, and the changes in its financial position for the years then ended in conformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.OtherMatters

RequiredSupplementaryInformation

Accounting principles generally accepted in the United States of America require thatmanagement’s discussion and analysis on pages 3‐16 be presented to supplement the basicfinancial statements. Such information, although not a part of the basic financial statements, isrequiredbytheGovernmentalAccountingStandardsBoardwhoconsidersittobeanessentialpartof financial reporting for placing the basic financial statements in an appropriate operational,economic, or historical context. We have applied certain limited procedures to the requiredsupplementaryinformationinaccordancewithauditingstandardsgenerallyacceptedintheUnitedStatesofAmerica,whichconsistedofinquiriesofmanagementaboutthemethodsofpreparingtheinformationandcomparing the information forconsistencywithmanagement's responses toourinquiries,thebasicfinancialstatements,andotherknowledgeweobtainedduringourauditofthebasic financial statements. We do not express an opinion or provide any assurance on theinformationbecausethe limitedproceduresdonotprovideuswithsufficientevidencetoexpressanopinionorprovideanyassurance.OtherReportingRequiredbyGovernmentAuditingStandards

In accordance with Government Auditing Standards, we have also issued our report datedOctober21, 2016 on our consideration of the Medical Center's internal control over financialreportingandonourtestsofitscompliancewithcertainprovisionsoflaws,regulations,contracts,andgrantagreementsandothermatters.Thepurposeofthatreportistodescribethescopeofourtestingof internalcontrolover financial reportingandcomplianceand theresultsof that testing,andnottoprovideanopiniononinternalcontroloverfinancialreportingoroncompliance.ThatreportisanintegralpartofanauditperformedinaccordancewithGovernmentAuditingStandardsinconsideringtheMedicalCenter’sinternalcontroloverfinancialreportingandcompliance.

Albuquerque,NewMexicoOctober21,2016

UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)MANAGEMENT’SDISCUSSIONANDANALYSISJUNE30,2016AND2015

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The followingdiscussionandanalysisprovidesanoverviewof the financialpositionandactivitiesofUNMSandovalRegionalMedicalCenter(theMedicalCenter)asofandfortheyearsendedJune30,2016,2015,and2014.Thisdiscussionshouldbereadinconjunctionwith the accompanying financial statements and notes. Management has prepared thebasicfinancialstatementsandtherelatednotedisclosuresalongwiththisdiscussionandanalysis.Assuch,thefinancialstatements,notes,andthisdiscussionaretheresponsibilityoftheMedicalCenter’smanagement.UsingThisAnnualReportThis annual report consists of financial statements prepared in accordance withGovernmental Accounting Standards Board (GASB) Statement No.34, Basic FinancialStatements–andManagement’sDiscussionandAnalysis–forStateandLocalGovernments,asamended.The financial statements prescribed by GASB 34, as amended, (thestatements of netposition,statementsofrevenues,expenses,andchangesinnetposition,andthestatementsofcashflows)present financial information ina formsimilarto thatusedbycommercialcorporations.Theyarepreparedundertheaccrualbasisofaccounting,wherebyrevenuesand assets are recognizedwhen the service is provided, and expenses and liabilities arerecognizedwhenothersprovidetheserviceorgoodsarereceived,regardlessofwhencashisexchanged.The statements of net position include all assets and liabilities. Over time, increases ordecreasesinnetposition(thedifferencebetweenassetsandliabilities)isoneindicatoroftheimprovementorerosionoftheMedicalCenter’sfinancialhealthwhenconsideredwithnonfinancial factssuchaspatientstatisticsandtheconditionof facilities. Thisstatementincludesallassetsandliabilitiesusingtheaccrualbasisofaccounting,whichisconsistentwith the accounting method used by nongovernmental hospitals and healthcareorganizations.The statements of revenues, expenses, and changes innetpositionpresent the revenuesearnedandexpensesincurredduringtheyear.Activitiesarereportedaseitheroperatingornonoperating.Apublichospital’sdependencyongovernmentalfundingcanresultinanoperating deficit since the financial reportingmodel classifies such aid as nonoperatingrevenues, which is the case with countymill levy received by the Medical Center. Theutilizationof capital assets is reflected in the financial statementsasdepreciation,whichamortizesthecostofanassetoveritsexpectedusefullife.The statements of cash flows presents information related to cash inflows and outflowssummarizedbyoperating,capitalandnoncapitalfinancing,andinvestingactivities.

UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)MANAGEMENT’SDISCUSSIONANDANALYSIS(CONTINUED)JUNE30,2016AND2015

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OverviewofEntityInAugust2009,RegentsoftheUniversityofNewMexico(UNM)approvedtheformationoftheMedicalCenter,aNewMexicononprofitcorporationorganizationunderandpursuanttotheNewMexicoUniversityResearchParkandEconomicDevelopmentAct.TheMedicalCenterwasorganizedfortheoperationofalicensedgeneral,communityteachingMedicalCenterinSandovalCountyandtofacilitateanddeveloptheclinicalandmedicalpracticesofthefacultyoftheUniversityofNewMexicoSchoolofMedicine(UNMSOM).ThefollowingsummarizesthehealthcareservicesthatareofferedbytheMedicalCenter:

InpatientCare–Acutecareprovidedbypractitionersin48acutemedical‐surgicalbeds,12 intensive care unit beds and 12 dedicated senior behavioral health beds. TheMedicalCenter isequippedwithanemergencydepartmentwith11examrooms, twotraumaroomsandtwotriagerooms.Additionally,theMedicalCenterisequippedwithsix operating rooms, threeminor procedure rooms and one interventional radiology(IR)lab.Outpatient Care – Comprehensive offering of sleep disorders center, laboratory,radiology,diagnosticservices,rehabilitationservices,medicalandsurgicalclinics.SurgicalServices–Anesthesia,GeneralSurgery,Orthopedic(includinghand),Bariatric,Podiatry, Otolaryngology, Urologic, Gynecologic, Urogynecologic, Gastrointestinal,Breast,minimallyinvasivespinesurgeryandoutpatientlaparoscopicsurgery.PhysicianServices–theMedicalCenterhasan"open"medicalstaff,allowingcommunityphysiciansinadditiontotheUNMSOMproviderstobemembersoftheactivemedicalstaffandtoadmitandfollowtheirpatientsattheMedicalCenter.Therearecurrently603 physicians credentialed ofwhich 496 are School ofMedicine physicians and theremaining107arecommunityphysicians.


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FinancialSummary

CondensedSummaryofNetPosition

Assets 2016 2015 2014

Currentassets $ 39,456,579 35,382,906 40,841,685

Capitalassets,net 114,356,360 121,779,060 128,091,305

Noncurrentassets 7,411,546 5,404,485 3,480,942

Totalassets $ 161,224,485 162,566,451 172,413,932

Liabilities

Currentliabilities $ 17,145,678 14,951,394 24,079,883

Noncurrentliabilities 124,960,000 128,500,000 131,880,000

Totalliabilities $ 142,105,678 143,451,394 155,959,883

NetPosition

Netinvestmentincapitalassets $ (14,143,640) (10,100,940) (15,333,693)

Restrictednetposition,expendable 13,426,714 11,336,578 24,100,300

Unrestricted 19,835,733 17,879,419 7,687,442

Totalnetposition $ 19,118,807 19,115,057 16,454,049

AsofJune30,

At June30, 2016, total Medical Center assets were $161.2 million compared to$162.6million at June30, 2015. TheMedical Center’smost significant assets at June30,2016werenetcapitalassetsof$114.4million,cashandcashequivalentsof$22.7millionfollowedbypatientreceivablesof$11.6million.ThedecreaseinassetsfromJune30,2015toJune30,2016isprimarilyduetodecreasesinnetcapitalassets.Thedecreaseinnetcapitalassetsistheresultofdepreciationexceedingcapitaladditionssincethefacilityisstillrelativelynew.Operatingcashincreasedby$3.5millionduringtheyearendedJune30,2016from$13.2millionatJune30,2015to$16.7million at June 30, 2016. This increasewas driven largely by an additional $5.1millionreceivedincashreceiptsforpatientcarefortheyearendedJune30,2016comparedtotheyearendedJune30,2015.At June30, 2015, total Medical Center assets were $162.6million compared to$172.4million at June30, 2014. TheMedical Center’smost significant assets at June30,2015werenetcapitalassetsof$121.8million,cashandcashequivalentsof$19.0millionfollowedbypatientreceivablesof$10.3million.


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TheMedicalCenter’sliabilitiestotaled$142.1millionatJune30,2016comparedto$143.5millionatJune30,2015.AtJune30,2016,currentandnoncurrentbondspayableof$128.5millionwasthelargestliability,followedbyaccountspayableof$4.9million.Thedecreasein liabilities is due to a decrease in the amount of bonds payable resulting from thepaymentsof the scheduledmandatorybond redemptionsof$3.4millionduring theyearendedJune30,2016.The Medical Center’s liabilities totaled $143.5 million at June30, 2015 compared to$156.0millionatJune30,2014.AtJune30,2015,currentandnoncurrentbondspayableof$131.9millionwasthelargestliability,followedbyaccountspayableof$3.9million.AtJune30,2016,2015and2014,theMedicalCenter’scurrentassetsof$39.5million,$35.4millionand$40.8million,respectively,weresufficienttocovercurrentliabilitiesof$17.1million (current ratio of 2.30), $15.0 million (current ratio of 2.37) and $24.1 million(currentratioof1.70),respectively.TotalnetpositionasofJune30,2016increasedby$3,750to$19.1million,whichincludedan operating loss of $2.2million and net nonoperating revenues of $2.2million.Unrestricted net position totaled $19.8million with a net deficiency in capital assets of$14.1million at June30, 2016. Restricted net position, expendable as of June 30, 2016increasedby$2.1millionto$13.4million,whichwasdrivenbya$2.0millionincreaseincashheldbytrusteeformortgagereservefund.Total net position as of June30, 2015 increased by $2.7 million to $19.1million, whichincludedanoperatinggainof$1.6millionandnetnonoperatingrevenuesof$1.1million.Unrestricted net position totaled $17.9million with a net deficiency in capital assets of$10.1million at June30, 2015. Restricted net position, expendable as of June 30, 2015decreasedby$12.8millionto$11.3million,whichwasdrivenbya$10.4millionreductionincashheldby trustee fordebt service thatwasused topayscheduledmandatorybondredemptions, a $4.3 million reduction in cash held by trustee for operations that wasdrawndownduringfiscalyear2015,andpartiallyoffsetbyanincreaseof$1.9millionincashheldbytrusteeformortgagereservefund.Totalnetposition (assetsminus liabilities) is classifiedby theMedicalCenter’s ability tousetheseassetstomeetoperatingneeds.Unrestrictednetpositionmaybeusedtomeetalloperating needs of theMedical Center. A portion of theMedical Center’s net position isrestrictedbythetrustindentureanddebtagreement.


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YearEndedJune30,

2016 2015 2014

Totaloperatingrevenues $ 77,175,219 75,270,952 54,091,041

Totaloperatingexpenses (79,405,472) (73,687,255) (59,373,188)

Operating(loss)gain (2,230,253) 1,583,697 (5,282,147)

Netnonoperatingrevenues(expenses) 2,234,003 1,077,311 2,717,130

Totalincrease(decrease)innetposition 3,750 2,661,008 (2,565,017)

Netposition,beginningofyear 19,115,057 16,454,049 19,019,066

Netposition,endofyear $ 19,118,807 19,115,057 16,454,049

CondensedSummaryofRevenues,Expenses,andChangesinNetPosition

OperatingRevenuesThesourcesofoperatingrevenuesfortheMedicalCenterarenetpatientserviceandotheroperating revenues,with themost significant source being net patient service revenues.Operatingrevenueswere$77.2million,$75.3millionand$54.1millionfortheyearsendedJune30,2016,2015and2014,respectively.Net patient service revenue is comprised of gross patient revenue, net of contractualallowances, charitycare,provision fordoubtfulaccounts,andany thirdpartycost reportsettlements. Net patient service revenues were $76.6million, $74.8 million and$52.7millionfortheyearsendedJune30,2016,2015and2014respectively.Theincreaseof$1.8millionistheresultofanincreaseinvolumes(seechartbelow).ThefollowingtablesummarizeskeyoperatingstatisticsfortheyearsendedJune30,2016,2015and2014:

YearEndedJune30, 2016 2015 2014 InpatientDays 15,918 15,348 12,136Discharges 3,453 3,178 2,682OutpatientVisits 36,224 31,849 27,498EmergencyVisits 18,954 15,808 14,080Surgeries 4,135 3,713 3,517Theaveragedailycensus(ADC)fortheyearendedJune30,2016was43.5andincreasedby1.5patientsperdayfromanADCof42.0fortheyearendedJune30,2015.PaymenttoNewHospitalsasdefinedunderC.F.R.§412.300(b),ispaidat85percentofitsallowableMedicare Inpatienthospitalcapital‐relatedcosts through itscostreportendingatleast2yearsafterthehospitalacceptsitsfirstpatient.TheMedicalCenteraccepteditsfirstpatientonJuly17,2012,thusthefirstcostreportperiodbeginningatleasttwoyearsafterthisdateiscostreportperiodJuly1,2015toJune30,2016.BeginningJuly1,2016,


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the Medical Center will be subject to the prospective federal capital rate. Net patientservice revenue for the fiscal years ended June 30, 2016 and 2015 includes cost reportestimates for the Medicare and Medicaid programs. At June 30, 2016, a payable forMedicare was recorded in the amount of $142,624 and a receivable for Medicaid wasrecorded in the amount of $309,678. The entire receivable amount for Medicaid is anestimate for the capital reimbursement component. At June 30, 2015, receivables forMedicare and Medicaid were recorded in the amounts of $1,154,000 and $330,261,respectively, and include an estimate for the capital reimbursementcomponent. Reductions totaling $1,042,000 were made adjusting the estimated 2014Medicarecostreportsettlementreceivableduetorevisionsinthedisproportionateshare(DSH) calculation when the amended cost report was filed during 2015. Laws andregulations governing the Medicare andMedicaid programs are extremely complex andsubjecttointerpretation.Asaresult,thereisatleastareasonablepossibilitythatrecordedestimateswill change by amaterial amount in the near term. Estimates are continuallymonitoredandreviewed,andassettlementsaremadeormoreinformationisavailabletoimprove estimates, differences are reflected in current operations. Net patient servicerevenue for the fiscal year ended June 30, 2014 included cost report estimates for theMedicare and Medicaid programs in the amounts of $2.0 million and $228,093,respectively.TheMedical Center offers a financial assistance program called SRMC Care towhich alleligible patients are encouraged to apply. This program assigns patients primary careprovidersandenablesthemtoreceivecarethroughouttheMedicalCenterandatallcliniclocations. Thisprogram isavailable toSandovalCountyresidentswhoalsomeetcertainincomeandassetthresholds.PatientsapplyingforcoverageunderSRMCCaremustapplyforcoverageunderMedicaidortheHealthInsuranceExchange(HIX), ifeligible. PatientsmaycontinuetoreceiveSRMCCareuntiltheyreceiveMedicaideligibilityornotificationofcoverage under the Exchange. Patients certified under Medicaid or the Exchange maycontinue toqualify forSRMCCareasa secondary coverage for copaysanddeductibles iftheymeettheincomeguidelines. IfapatienthasaccesstoinsurancecoverageundertheExchange,or throughothercoverageoptions,suchasanemployerorspouse, thepatientwould be expected to obtain coverage through that source prior to eligibility for SRMCCare.TheMedicalCenterusesthesameslidingincomescaleastheAffordableCareActtodetermine if insurance coverage is considered affordable. If coverage is determinednotaffordable, patients may be granted a hardship waiver, and would not be required topursuecoverageunderHIX.ThesepatientswouldqualifyforSRMCCare.TheMedicalCenterdoesnotpursuecollectionofamountsdetermined toqualifyascharitycare, with the exception of copayments. The cost of charity care provided under thisprogram for the years ended June30, 2016, 2015, and 2014 approximated $1.8million,$1.2million,and$2.4million,respectively.


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TheMedicalCenterprovidescare topatientswhoareeitheruninsuredorunder‐insuredandwhodonotmeetthecriteriaforfinancialassistance. TheMedicalCenterencouragespatients tomeetwitha financial counselor todeveloppaymentarrangements. Althoughthe Medical Center pursues collection of these accounts usually through an extendedpaymentplanoradiscountedrate,interestisnotchargedontheseaccounts,liensarenotplaced on property or assets, and judgments are not filed against the patients. Theseaccountsarefullyreservedandrecordedasprovisionforuncollectibleaccounts.Provisionexpenserecordedforfiscalyears2016,2015and2014was$7.3million,$2.8million,and$19.6million,respectively.ThecostofcareprovidedtopatientswhoareeitheruninsuredorunderinsuredandwhodonotmeetthecriteriaforfinancialassistanceforyearsendedJune30,2016,2015and2014was$3.4million,$1.3million,and$9.3million,respectively.OperatingExpenses

OperatingexpensesfortheMedicalCenterincludeitemssuchasemployeecompensationandbenefits,medicalservices,medicalsupplies,andequipment.

For the year ended June 30, 2016, total operating expenses were $79.4 million andrepresent an increase of $5.7 million from the year ended June 30, 2015. The mostsignificant expense was an increase of $3.4 million for employee compensation. Thenumberofemployeesincreasedduringfiscalyear2016asaresultofanincreaseinstaffinglevelstosupportanincreaseinclinicalvolumes.Therewasalsoawageincreaseof2.7%inNovember 2015. Employee benefits increased by $582,000 as a direct result of theincrease in employee compensation. The second largest increase was $1.7 million inmedicalandothersupplies,whichwastheresultofanincreaseinimplantablesuppliesduetotheincreaseinsurgeriesperformed.NonoperatingRevenuesandExpensesFor the years ended June30, 2016, 2015, and 2014, net nonoperating revenues net ofnonoperatingexpenseswere$2.2million$1.1millionand$2.7million,respectively.The most significant nonoperating revenue at June30, 2016, 2015, and 2014, was theSandovalCountymill levy (the “mill levy”) tax subsidy totaling $6.2million, $6.1millionand$8.0million,respectively. Thedecreasein2015wasaresultof theMedicalCenter’sshareofthetaxproceedsdecreasingfrom60%in2014to45%in2015and2016.ThistaxsubsidyisprovidedforthegeneraloperationsoftheMedicalCenter. TheMedicalCenterreceived this tax subsidy by voter endorsement for the services the Medical Centerprovides.PursuanttoaHealthFacilityAgreementwiththeBoardofCountyCommissionersofSandovalCounty,NewMexico,afteropening,theMedicalCenterwasentitledtoreceivethe proceeds of amill levy adopted by the Board of County Commissioners of SandovalCountyandapprovedbythevotersofSandovalCounty.TheMedicalCenterrecognizesMillLevyFundsbasedonthefiscalyearthatthelevyiscollectedbytheCounty,andrecordsthefundsreceivedasnonoperatingrevenues.


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Thenext largestsourceofnonoperatingrevenue in theyearsended June30,2016,2015and2014wastheFederalBondSubsidyintheamountof$2.0million,$2.0millionand$2.2million, respectively. TheMedical Center receives subsidy payments related to interestpayments under the federal Build America Bond and Taxable Revenue Recovery ZoneEconomic Development Bond programs. The Medical Center is eligible to receive cashsubsidy payments from the United States Department of Treasury equal to 35% of theinterest payable on the Build America Bonds (Series 2010A), and 45% of the interestpayableontheRecoveryZoneEconomicDevelopmentBonds(Series2010B).PursuanttotheBudgetControlActof2011,aspostponedbytheAmericanTaxpayerReliefActof2012,thebudgetsequestrationimpactwasareductionof7.2%,effectiveJuly1,2013.ThishadtheeffectofchangingthesubsidypaymentfromtheUnitedStatesDepartmentofTreasuryequal to32.48%of the interestpayableon theBuildAmericaBonds(Series2010A),and41.76%oftheinterestpayableontheRecoveryZoneEconomicDevelopmentBonds(Series2010B). For Federal fiscal year 2016, beginning October 1, 2015, the sequestrationpercentagechangedslightlyto6.8%.Themost significant nonoperating expense recorded for the years ended June 30, 2016,2015,and2014wasbondinterestexpenseintheamountof$5.9million,$6.0million,and$6.5million,respectively.CapitalAssets

At June30,2016, theMedicalCenterhad$114.4million invested in capital assets, netofaccumulated depreciation of $35.1 million. Depreciation charges for the year endedJune30, 2016, 2015 and 2014 totaled $8.5million, $9.6 million and $9.1 million,respectively.

2016 2015 2014

Land,buildingandimprovements $ 105,233,120 105,130,301 104,937,400

Buildingserviceequipment 3,670,354 3,505,706 2,690,802

Fixedequipment 4,044,135 3,484,347 2,382,124

Majormoveableequipment 36,368,556 36,145,365 34,749,109

Constructioninprogress 165,778 200,675 397,709

149,481,943 148,466,394 145,157,144

Lessaccumulateddepreciation (35,125,583) (26,687,334) (17,065,839)

Netpropertyandequipment $ 114,356,360 121,779,060 128,091,305

YearEndedJune30,


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FortheyearendedJune30,2016,totaldepreciablecapitalassetsincreasedby$1.1millionfromJune30,2015.Majormoveableequipmentadditionswere$744,094withthelargestasset additions of $113,340 for a sterilization system, $48,128 for an operating roomdiscoscope system and $44,903 for an operating room video system. Building serviceequipmentincreasedby$164,648formultipleassets.Buildingandbuildingimprovementsincreasedby$102,818withthelargestassetof$68,846foranewcardiologyexamroom.DebtActivityTheMedicalCenter’scurrentandnoncurrentbondspayabletotaled$128.5million,$131.9million and $143.4 million at June30, 2016, 2015 and 2014, respectively. The currentportionofthisdebtwas$3.5million,$3.4millionand$11.5millionatJune30,2016,2015,and 2014, respectively. This debt is related to the Government National MortgageAssociation(GNMA)CollateralizedSeries2010Aand2010Bbonds.On July20, 2015, the scheduledmandatorybond redemptionpaymentwasmadeby theMedicalCenterontheSeries2010A;aprincipalpaymentof$1.67millionandaninterestpaymentof$2.75million.OnJanuary20,2016aprincipalpaymentof$1.71millionandaninterestpaymentof$2.71millionweremade.NoprincipalpaymentwasdueontheSeries2010Bbonds,butinterestpaymentsof$243,500weremadeonbothdates.Thereisaloanguaranteethatisconsideredfederalassistancesubjecttotherequirementsof Office of Management and Budget (OMB) Uniform Guidance. Accordingly, the loanguarantee is considereda federalaward forpurposesofUNM’s June30,2016,2015,and2014SingleAudit.FactorsImpactingFuturePeriods

Inthe2016NewMexicoStatelegislativesession,HouseBill2wasissuedwhichstatedthattheHuman ServicesDepartment (HSD) “…shall reduce reimbursement rates toMedicaidproviders…”ThiswasinresponsetosignificantshortfallsinStaterevenues,largelyrelatedtoreducedoilandgastaxes.OnApril29,2016,HSDpublishedMedicalAssistanceProgramManual Supplement Number 16‐01 announcing that the HSD would be implementingpaymentratereductionstobeeffectiveJuly1,2016.TheHSDconvenedasubcommitteeoftheMedicaidAdvisoryCommittee(MAC)toproviderecommendationsforreductions. OnJune 29, 2016, HSD issued Supplement Number 16‐03 that finalized the reductions thatwere effective July 1, 2016. Inpatient hospital reimbursement rates at acute care andcritical access hospitals were decreased by 5%. This reduction applies to all paymentmethodologiesforinpatienthospitalservices,includingDRGmethodology,reimbursementforcapitalcostsandoutlierpayments.Hospital outpatient reimbursement rates at acute care, critical access and outpatientrehabilitativehospitalswerereducedby3%.Outpatienthospitallaboratoryserviceswerereducedby6%toalignwiththeMedicaidfeescheduleforlaboratoryservicesandtoreflect


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movementoftheMedicaidfeescheduleto94%ofMedicareratesforlaboratoryservices.TheMedicalCenter’sreimbursementfromMedicaidmanagedcareorganizations(MCO)isbasedontheStateoutpatientfeeschedules.Reimbursementratesforbothfee‐for‐serviceandMedicaidMCOpatientsareimpactedbythisoutpatientreduction.Supplement 16‐03 delayed implementation of certain fee schedule reductions forphysicians and other practitioners until August 1, 2016, to allow for further analysis byHSD. On July 20, 2016,HSDpublished SupplementNumber 16‐07with final reductionsthat were effective August 1, 2016. HSD considers the fee schedule for the Medicareprogram tobe the “standard for fee‐for‐servicepaymentmethodology inAmerica…andintends to move its reimbursement policy for the Medicaid program toward greateralignmentwithapercentageofMedicarerates.”TheSupplementstatesthat“NewMexico’sMedicaidrateswere7thhighestinthenationin2014,atanaverageof91%ofMedicareand25%above thenational average for stateMedicaidprograms.” HSD implementeda firstphase of reductions effective August 1, 2016 and a second phase of reductions to beeffectiveJanuary1,2017.ThepractitionerreductionseffectiveAugust1,2016,rangefrom0%to6%dependingonacomparisonofeachCPTcodescurrentreimbursementrate toMedicare reimbursement rates,with a goal of reimbursement being at or below94%ofMedicarereimbursementrates.ForthereductionseffectiveJanuary1,2017,HSDintendstomoveanyratesthatareabove100%ofMedicareratesto94%ofMedicarerates. TheStatedoesnotexpectthesereductionsininpatientandoutpatienthospitalandpractitionerreimbursementtohaveanimpactonMedicaidrecipientaccesstoproviders.Theimpactoftheseinpatient,outpatientandpractitionerreductionsontheMedicalCenterisestimatedat$310,000.EffectiveJuly1,2016,oneoftheMedicalCenter’sMCO,UnitedHealthcare,terminateditsMedicaidmanagedcarecontractwith theMedicalCenterafter theMCOsoughtextensivereductions inMedicaidreimbursement. TheMedicalCenter isno longercontractedwithUnited Healthcare to provide Medicaid services. The Medical Center expects to see adeclineinUnitedHealthcareMedicaidpatientsscheduledforclinicvisitsandprocedures.TheMedicalCenterisanticipatingtobackfillthislossinvolumeswithpatientscoveredbyotherMedicaidandcommercialproviders.TheMedicalCenter’scommercialcontractwithUnitedHealthcareisunaffectedbythesechanges.

TheMedicalCenter currentlyhas a3‐yearagreementwithMolinaHealthcare toprovideservices to Medicaid patients. During fiscal year 2016, Molina forced reopening ofnegotiationsbythreateningcontractterminationasitsoughtsubstantialreductionsinitsMedicaidpaymentstotheHospital.InlieuofterminationandthecorrespondingimpacttoMedicaid beneficiaries, the Medical Center and Molina have tentatively agreed to areductioninratesforbothinpatientacuteandoutpatientservicesthatwouldbeeffectivefordatesof servicebeginningAugust1,2016. Thesereductionsareestimated to impacttheMedicalCenterby$1.3million.


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OnAugust2,2016,CMSreleasedthefiscalyear2017InpatientProspectivePayment(IPPS)FinalRule. TheIPPSrateswill increasebyamarketbasketincreaseof2.7%,lessa0.3%productivity reduction mandated under the Affordable Care Act (ACA), less a 1.5%documentation and coding reductionmandated by the American Taxpayer Relief Act of2012 (ATRA), less a 0.75% reduction to offset projected increases associated with newadmissionandmedicalreviewcriteriaforinpatientservices,andplusa0.8%increasefortwo‐midnightpolicyadjustments.CMSstatesthatthefiscalyear2017ATRAcut,combinedwiththoseappliedinfiscalyears2014,2015and2016willfulfillthe$11billionrequiredrecoupment.CMSisexpectedtorestorethisreductiontothestandardizedamountinfiscalyear2018.Inthefiscalyear2014IPPSfinalrule,CMSimposedapermanent0.2%reductiontooffsetwhatCMSestimatedtobea$220millionincreaseininpatientPPSduetoimplementationof the two‐midnight rule. Several hospitals and hospital organizations filed suit againstCMS challenging the reduction. In September 2015, the court rejected CMS’s argumentsandrequiredCMStoprovidefurtherjustificationforthereduction.CMSfailedtoprovideadequatejustification.Inthefiscalyear2017finalrule,CMSwillimplementapermanentincreaseof0.2%forfiscalyear2017andonward.Therulealsoprovidesforatemporaryincreaseof0.6%torecoverthenegativeimpactofthiscutonfiscalyears2014,2015,and2016.Thetemporaryincreasewillberemovedfromthemarketbasketinfiscalyear2018.Thenetimpactofthemarketbasketincreaseandadjustmentsisestimatedtobe$600,000.Hospitals not submitting quality data and notmeaningful use users of electronic healthrecords(EHRs)infiscalyear2015aresubjecttoafullreductionintheinitialmarketbasketincreaseof2.7%.Ifahospital issubject tobothreductions, theywillstartwithamarketbasketrateof0.0%,andwillreceiveanupdateofnegative1.75%.TheMedicalCenterhassubmittedqualitymeasuresandisconsideredameaningfuluseuserforfiscalyear2015;therefore, there will be no negative impact on the Medical Center’s reimbursement forthesetwofactors.Beginning in fiscal year 2014, ACA required changes to Medicare DSH payments. TheMedicalCenterreceives25%oftheDSHpaymentpreviouslyreceivedusingthetraditionalformula aspartof the “base”DRGpayments for eachMedicare inpatientdischarge. Theremaining75%flowsintoaseparatefundingpoolandisdistributedbasedoneachDSH‐eligible hospital’s ratio of uncompensated care relative to the total for all DSH‐eligiblehospitals. This portion of the Medicare DSH funding is paid as a flat amount on eachMedicareinpatientdischarge.Thispoolisreducedasuninsuredpopulationsdecline.Thenationaluninsuredrateisestimatedtobe10%forfiscalyear2017.Theestimatedimpactassociatedwith the federal fiscal year 2017MedicareDisproportionate sharewill be anincreaseof$42,000.The2017IPPSfinalruleimplementstheNoticeofObservationTreatmentandImplicationof Care Eligibility (NOTICE) Act. This Act requires hospitals to provide Medicarebeneficiaries receivingobservation services formore than24hours anotice andanoral


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explanation that the beneficiary is an outpatient receiving observation services and theimplications of that status. Hospitals will be required to furnish a new CMS‐developedstandardized notice, the Medicare Outpatient Observation Notice (MOON), to Medicarebeneficiariesreceivingobservationservices formore than24hours. Thenoticemustbedeliverednolaterthan36hoursafterobservationservicesbegin,orsoonerifthepatientistransferred,dischargedoradmittedasaninpatient. ImplementationoftheNOTICEactisdelayed beyond the August 6, 2016 statutory deadline as the MOON is submitted forcomment and a comment review period. CMS will announce the start of theimplementationperiodonitsBeneficiaryNoticesInitiativewebsite. On July 6, 2016, CMS issued the proposed calendar year 2017 Outpatient ProspectivePayment rule. CMS proposed to raise the base OPPS Payment rate by amarket basketincreaseof2.8%,lessaproductivityadjustmentof0.5%and0.75%forreductionsrequiredunderACA. Forhospitals thatdonot report the requiredqualitymeasures identifiedbyCMS,theupdatewillbedecreasedby2.0percentagepoints,to‐0.45%.TheMedicalCenterdoesreportqualitymeasuressonofinancialimpactisanticipated.OPPS currently includes 37 comprehensive ambulatory payment classifications (C‐APCs)thatpackageanumberof related itemsand services containedon the same claim into asingle payment for a comprehensive primary service. For calendar year 2017, CMS hasproposedadding25C‐APCs,manyofwhicharemajor surgicalAPCs. CMShasproposedaddingnewC‐APCclinicalfamiliestoincludenerveprocedures,excisions,biopsy,incisionanddrainageproceduresandairwayendoscopyprocedures.Effective January 1, 2016, CMS implemented the Comprehensive Care for JointReplacement Model (CJR), a mandatory bundled payment program for hip and kneereplacementsurgery(MS‐DRGs469and470).TheCJRpaymentmodelholdsthehospitalinwhichthejointreplacementtakesplacefinanciallyresponsiblefortheentireepisodeofcare, from the date of surgery through 90 days post‐discharge. The episode of careincludesthesurgicalprocedureand inpatientstayandrelatedserviceswithin90daysofdischarge,includinginpatientandoutpatient,readmission,inpatientrehabilitation,skilled‐nursingandhomehealthservices.CMSwilltesttheCJRmodelforfiveyearswiththefirstmodelyearbeginningApril1,2016andyear fiveendingDecember31,2020. Under themodel,allproviderscontinuetoreceivepaymentunderMedicarefee‐for‐service.Afterthecompletion of the performance year, claims payments are grouped into episodes andaggregated. CMSwillcomparetheparticipatinghospital’s totalepisodepaymenttotheir“targetprice”. The “targetprice”would reflect ahospital’shospital‐specific and regionalblendedhistoricalpayments,less2.0%.Ifthetotalepisodepaymentsarebelowthetargetprice, Medicare will pay the hospital the difference in the form of a “reconciliationpayment.”Ifspendingwasinexcessofthetargetprice,thehospitalwillpayMedicarethedifference.Onlyhospitalsmeetingorexceedingperformancethresholdsoncertainqualitymeasureswillbeeligiblefora“reconciliationpayment.”ThefirstperformanceyearbeginsApril 1, 2016 and ends December 31, 2016. Medicarewill not require repayment from


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hospitals for performance year one for actual episodepayments that exceed their targetprice.On August 2, 2016, CMS published a proposed rule to implement retrospective bundledpaymentsincertainselectedgeographicareasforMedicarefee‐for‐servicesreceivingcarefor acutemyocardial infarction (AMI), coronary artery bypass graft (CABG) and surgicalhip/femur fracture treatment excluding lower extremity joint replacement (SHFFT).Similar to theCJRmodel, inpatienthospitalswouldbe theepisode initiatorandbear thefinancialriskofMedicarefee‐for‐servicepatientsdischargedundertheseconditions. Theepisodewould consist of all services provided during the acute inpatient encounter andpost‐discharge services through 90 days post‐discharge. The rule proposes to test thispaymentmodelfor5performanceyearsbeginningJuly1,2017andendingDecember31,2021. Providers will continue to receive Medicare fee‐for‐service payments. Uponcompletion of a performance year, claims payments will be combined to calculate theactualepisodepaymentandcomparedagainstatargetprice.Reconciliationpaymentswillbemadetohospitalswhenactualpaymentsarelessthanthetargetprice. AlsosimilartoCJR, hospitals must meet certain quality measures to be eligible for reconciliationpayments.Beginningwiththesecondperformanceyear,CMSwillrequirerepaymentfromhospitalwhen their actualpaymentsaregreater than the targetprice. CMSproposed totest this payment model in 98 metropolitan service areas (MSAs) from a possible 294MSAs.TheMedicalCenterisincludedintheAlbuquerque,NM(MSA),whichislistedasoneofthepotentialMSAs.IftheMSAisselected,theMedicalCenterwouldbeaparticipantinthisepisodepaymentmodel.OnJuly28,2016,CentersforMedicare&MedicaidServices(CMS)releasedthefiscalyear2017 InpatientPsychiatric Facilities (IPF) ProspectivePayment System (PPS)FinalRule.The IPF PPS rates will increase by a market basket increase of 2.8%, less a 0.3%productivity reduction and an additionalmarket basket reduction of 0.2% asmandatedundertheACA,andadecreaseof0.1%resultingfromanupdatedoutlier threshold. TheincreasetotheMedicalCenterwouldbeanestimated$26,600.The RAC program encompassing NewMexico became effective in March 2009, withConnollyConsultingAssociates,Inc.asthecontractor.CMSiscurrentlyintheprocurementprocessforthenextroundofRACcontractors.ThenewRACcontractsareexpectedtobeawardedbytheendofcalendaryear2016.October1,2016isthelastdaythatcurrentRACcontractors can submit claim adjustments to MAC for overpayment or underpayments.Oncenewcontractshavebeenawarded,theRACcontractorscanbeginsendingAdditionalDocumentationRequests.TheSandovalCountymilllevytheMedicalCenterreceivesisbasedonpropertyvalues.Itis possible that the amount of themill levymay remain flat orpotentially decrease as aresult of reduced property values and slowdowns in the building construction industry.TheMedical Center receivesmill levy proceeds pursuant to the Sandoval CountyHealthFacilities Agreement between the Board of County Commissioners of the County of


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Sandoval and the Medical Center. Themill levy is subject to approval by the SandovalCounty voters every eight years, and it will be up for renewal in the November 2016election.OnAugust4,2016,theSandovalCountyCommissionvotedtoplacethemilllevyontheNovemberballot.ContactingTheMedicalCenter’sFinancialManagementThis financial report is designed to provide the public with a general overview of theMedicalCenter’sfinancesandtoshowtheMedicalCenter’saccountabilityforthemoneyitreceives.Ifyouhavequestionsaboutthisreportorneedadditionalfinancialinformation,contacttheMedicalCenter’sController’sofficeatPOBox80600,Albuquerque,NM87198‐0600.

UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFUNIVERSITYOFNEWMEXICO)STATEMENTSOFNETPOSITIONJune30,2016and2015

Assets 2016 2015

Currentassets:Cashandcashequivalents $ 16,748,235 13,184,429Restrictedcashandcashequivalents:Heldbytrusteefordebtservice 5,937,858 5,853,358

Totalcashandcashequivalents 22,686,093 19,037,787

Receivables:Patient(netofallowancefordoubtfulaccountsandcontractualallowanceofapproximately$27,495,637in2016and$16,420,546in2015) 11,600,655 10,299,629

DuefromUNMMedicalGroup 47,567 ‐Estimatedthirdpartysettlements 826,489 1,942,338SandovalCountymilllevy 74,034 73,372Interestreceivable‐bondsubsidyproceeds 973,763 993,213Other 70,571 1,010

Totalnetreceivables 13,593,079 13,309,562

Prepaidexpenses 776,323 948,318Inventories 2,401,084 2,087,239

Totalcurrentassets 39,456,579 35,382,906

Noncurrentassets:Restrictedinvestments:Heldbytrusteeformortgagereservefund 7,411,546 5,404,485

Capitalassets,net 114,356,360 121,779,060

Totalnoncurrentassets 121,767,906 127,183,545

Totalassets 161,224,485 162,566,451

Liabilities

Currentliabilities:Accountspayable 4,861,256 3,875,745Accruedpayroll 1,478,255 1,300,909DuetoUniversityofNewMexico 66,313 158,005DuetoUniversityofNewMexicoHealthSystem 1,278,331 201,047DuetoUNMMedicalGroup 197,804 103,542Estimatedthirdpartysettlements 1,201,016 1,432,930Bondspayable–current 3,540,000 3,380,000Interestpayablebonds 2,915,600 2,991,650Accruedcompensatedabsences 1,607,103 1,507,566

Totalcurrentliabilities 17,145,678 14,951,394

Noncurrentliabilities:Bondspayable 124,960,000 128,500,000

Totalnoncurrentliabilities 124,960,000 128,500,000

Totalliabilities 142,105,678 143,451,394

NetPosition

Netdeficiencyincapitalassets (14,143,640) (10,100,940)

Restricted,expendableExpendablebequestsandcontributions 77,310 78,735Inaccordancewiththetrustindentureanddebtagreement 13,349,404 11,257,843

Unrestricted 19,835,733 17,879,419

Totalnetposition $ 19,118,807 19,115,057

Seeaccompanyingnotestofinancialstatements.

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2016 2015

Operatingrevenues:Netpatientservicerevenue $ 76,623,662 74,754,919Otheroperatingrevenues 551,557 516,033

Totaloperatingrevenues 77,175,219 75,270,952

Operatingexpenses:Employeecompensation 32,449,963 29,004,375Medicalandothersupplies 16,913,832 15,188,359Depreciation 8,456,101 9,621,494Medicalservices 7,139,074 5,592,810Benefits 5,954,159 5,371,916Purchasedservices 3,374,966 3,718,064Equipment 2,893,275 2,889,499Occupancy 1,507,620 1,619,039Other 716,482 681,699

Totaloperatingexpenses 79,405,472 73,687,255

Operating(loss)gain (2,230,253) 1,583,697

Nonoperatingrevenues(expenses):SandovalCountymilllevy 6,152,531 6,080,650Federalbondsubsidy 1,960,076 1,998,362Interestincome,net 11,883 5,991Interestonbonds (5,869,675) (6,017,732)Bequestsandcontributions 20 11,066Othernonoperatingexpense (20,832) (1,001,026)

Netnonoperatingrevenues(expenses) 2,234,003 1,077,311

Increaseinnetposition 3,750 2,661,008

Netposition,beginningofyear 19,115,057 16,454,049

Netposition,endofyear $ 19,118,807 19,115,057


UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFUNIVERSITYOFNEWMEXICO)STATEMENTSOFREVENUES,EXPENSESANDCHANGESINNETPOSITIONYearsEndedJune30,2016and2015

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFUNIVERSITYOFNEWMEXICO)STATEMENTSOFCASHFLOWSYearsEndedJune30,2016and2015

2016 2015Cashflowsfromoperatingactivities:CashreceivedfromMedicareandMedicaid $ 25,925,174 22,858,729Cashreceivedfrominsuranceandpatients 50,281,397 49,497,852Cashpaymentstoemployees (28,246,457) (24,710,090)Cashpaymentstosuppliers (38,172,064) (35,300,859)Cashreceivedfrom(paymentsto)UniversityofNewMexicoHealthSystem (1,238,654) (322,795)CashpaymentsfromUNMMedicalGroup (1,047,673) 103,542Cash(paymentsto)receivedfromUniversityofNewMexico (91,692) (927,926)Otherreceipts 481,996 516,033

Netcashprovidedbyoperatingactivities 7,892,027 11,714,486

Cashflowsfromnoncapitalfinancingactivities:CashreceivedfromSandovalCountymilllevy 6,151,869 6,110,099Cashreceivedfromcontributions 20 11,066

Netcashprovidedbynoncapitalfinancingactivities 6,151,889 6,121,165

Cashflowsfromcapitalfinancingactivities:Purchasesofcapitalassets (1,061,126) (3,309,249)Cashreceivedfromfederalbondsubsidy 1,979,526 2,086,411CashpaymentstoUNMMedicalGroupfornegativearbitragefund ‐ (2,040,000)Interestpaymentsonbonds (5,945,725) (6,278,145)Cashpaymentsformortgagereservefund (2,007,061) (1,923,543)Principalpaymentsonbonds (3,380,000) (11,545,000)Cashpaymentsformortgage‐relatedactivities(Mortgageservicing,MIP,GNMAguaranty) (792,690) (1,001,026)

Other receipts 799,583 ‐

Netcashusedincapitalfinancingactivities (10,407,493) (24,010,552)

Cashflowsfrominvestingactivities:Interestoninvestments 11,883 5,991

Netcashprovidedbyinvestingactivities 11,883 5,991

Netincrease(decrease)incashandcashequivalents 3,648,306 (6,168,910)

Cashandcashequivalents,beginningofyear 19,037,787 25,206,697

Cashandcashequivalents,endofyear $ 22,686,093 19,037,787


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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFUNIVERSITYOFNEWMEXICO)STATEMENTSOFCASHFLOWS(CONTINUED)YearsendedJune30,2016and2015

2016 2015

Reconciliationofoperatinglosstonetcashusedinoperatingactivities:Operating(loss)gain $ (2,230,253) 1,583,697Adjustmentstoreconcileoperatinglosstonetcashprovidedby(usedin)operatingactivities:Depreciationexpense 8,456,101 9,621,494Provisionfordoubtfulaccounts 7,323,852 2,750,843Changeinassetsandliabilities:Patientreceivables (8,624,878) (6,924,854)DuefromUniversityofNewMexicoHealthSystem ‐ 2,130,605DuefromUNMMedicalGroup (47,567) ‐Estimatedthirdpartypayersettlements 883,935 1,775,673Otherreceivablesandprepaidexpenses 102,434 1,251,562Inventories (313,845) (378,528)DuetoUniversityofNewMexicoHealthSystem 1,077,284 (132,046)DuetoUniversityofNewMexico (91,692) (927,926)DuetoUNMMedicalGroup 94,262 103,542Accruedpayroll 177,346 273,251Accruedcompensatedabsences 99,537 296,677Accountspayable 985,511 290,496

Netcashprovidedbyoperatingactivities $ 7,892,027 11,714,486


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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)NOTESTOFINANCIALSTATEMENTS JUNE30,2016AND2015

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NOTE1. DESCRIPTIONOFBUSINESSUNMSandovalRegionalMedicalCenterInc.(theMedicalCenter)isacorporationorganizedby the Regents of the University of New Mexico (UNM) and existing as a New Mexicogovernment nonprofit and University Research Park and Economic Development Act(URPEDA) corporation. The Medical Center is governed by its Board of Directors (theBoard), which is empowered to do all things necessary for the proper operation of theMedical Center. UNM, by and through its Board of Regents, is the sole member of theMedicalCenter.The Medical Center is located in Rio Rancho, New Mexico. The Medical Center is acommunity teaching Medical Center having completed the final stages of construction,openedandbegantoprovidepatientcareonJuly17,2012. TheMedicalCenterprovidesinpatient and outpatient services primarily to the residents of Sandoval County,NewMexico.TheMedicalCenterconsistsofanapproximately200,000squarefootcommunityteachingMedicalCenter,with48acutemedical‐surgicalbeds,12 intensive careunitbeds, and12dedicated senior behavioral health beds. There is also an onsite 40,000 square footmedicalofficebuilding. TheMedicalCenter isadjacent to theCityCenter inRioRancho,NewMexico.In2006,UNMacquiredthelanduponwhichtheMedicalCenterislocatedandownsitfeesimple.TheMedicalCenterisacomponentunitoftheUNMandisreportedassuchinthebasicfinancialstatementsofUNM.TheMedicalCenterhasnocomponentunits.NOTE2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIESBasisofPresentation. The accompanying financial statements have been prepared usingthe economic resource measurement focus and the accrual basis of accounting, inaccordancewithU.S.generallyacceptedaccountingprinciplesforhealthcareorganizations,andarepresentedinaccordancewiththereportingmodelasprescribedinGovernmentalAccounting Standards Board (GASB) Statement No.34, Basic Financial Statements – andManagement’sDiscussionandAnalysis– forStateandLocalGovernments, as amendedbyGASBStatement No.37, Basic Financial Statements – and Management’s Discussion andAnalysis– forStateandLocalGovernments:Omnibus; andGASBStatementNo.38,CertainFinancial Statement Note Disclosures. The Medical Center follows the business‐type


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NOTE2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(CONTINUED)activities’ requirements of GASBStatement No.34. This approach requires the followingcomponentsoftheMedicalCenter’sfinancialstatements:

Management’sdiscussionandanalysis.

Basic financial statements, including a statements of net position, statements ofrevenues,expenses,andchangesinnetposition,andstatementsofcashflowsusingthedirectmethodfortheMedicalCenterasawhole.

Notestofinancialstatements.

GASBStatementNo.34,asamendedbyGASBStatementNo.63,establishedstandardsforexternal financial reporting and requires that resources be classified for accounting andreportingpurposesintothefollowingthreenetpositioncategories:

Net Investment inCapitalAssets – Capital assets, net of accumulated depreciationand outstanding principal balances of debt attributable to the acquisition,construction,orimprovementofthoseassets.

RestrictedNetPosition–Expendable–AssetswhoseusebytheMedicalCenteraresubject to externally imposed constraints that can be fulfilled by actions of theMedicalCenterpursuanttothoseconstraintsorthatexpirebythepassageoftime.

Unrestricted Net Position – Assets that are not subject to externally imposedconstraints. Unrestricted net positionmay be designated for specific purposes byactionoftheBoardofTrustees.

Recent Accounting Pronouncement. The GASB issued GASB Statement No. 72, Fair ValueMeasurementandApplication(GASBNo.72),whichiseffectiveforfinancialstatementsforperiods beginning after June 15, 2015. GASBNo. 72 addresses accounting and financialreportingissuesrelatedtofairvaluemeasurementsbyprovidingguidancefordetermininga fair valuemeasurement for financial reporting purposes and for applying fair value tocertaininvestmentsanddisclosuresrelatedtoallfairvaluemeasurements.ThisStatementrequirestheuseofvaluationtechniquesthatareappropriateunderthecircumstancesandforwhichsufficientdataareavailabletomeasurefairvalueandestablishesahierarchyofinputstovaluationtechniquesusedtomeasurefairvalue.UseofEstimates.ThepreparationoffinancialstatementsinaccordancewithU.S.generallyacceptedaccountingprinciplesrequiresmanagementtomakeestimatesandassumptionsthataffect thereportedamountsofassetsand liabilitiesandthedisclosureofcontingentassetsandliabilitiesatthefinancialstatementdates,andthereportedamountofrevenuesandexpensesduringthereportingperiods.Duetouncertaintiesinherentintheestimationprocess,actualresultscoulddiffer fromthoseestimates. DuringtheyearendedJune30,2015,suchachangeintheestimateusedindeterminingcollectibleaccountsreceivable


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NOTE2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(CONTINUED)frompatientservicesforthepriorfiscalyeardidoccur.Asmoreinformationwithrespecttotheconversionofpatientsfromself‐payandindigentprogramstotheMedicaidprogram,including Centennial Care, was acquired, it was determined that patient accountsreceivableatJune30,2014wereunderstatedbyapproximately$3.3million.Thischangein estimate resulted in the additional $3.3 million in collections in patient accountsreceivableatJune30,2014beingincludedinnetpatientservicerevenuefortheyearendedJune30,2015.Cash and Cash Equivalents. The Medical Center considers all highly liquid investmentspurchasedwithanoriginalmaturityofthreemonthsorlesstobecashequivalents.

TheMedicalCenterfollowsGASBStatementNo.40,DepositandInvestmentRiskDisclosures–anamendmentofGASBStatementNo.3. Thisstatementaddressescommondepositandinvestmentrisksrelatedtocreditrisk,concentrationofrisk,interestraterisk,andforeigncurrencyrisk, andalso requirescertaindisclosuresof investmentsat fairvalues thatarehighly sensitive to changes in interest rates, as well as deposit and investment policiesrelatedtotherisksidentifiedinthestatement.

RestrictedCashandCashEquivalents. Thebalanceofrestrictedcashandcashequivalentsat June 30, 2016 and 2015 is cash held by trustee for debt service and is used for theprincipalandinterestcomponentsofdebtservice.

PatientReceivables.TheMedicalCenterrecordsthisbalanceattheestimatednetrealizablevalueafterdeductingcontractualdiscountsandallowances,freeserviceandallowanceforuncollectibleaccounts.

Inventories. Inventories consisting of medical, surgical and maintenance supplies, andpharmaceuticals are statedat the lowerof costormarket. Cost isdeterminedusing thefirst‐in, first‐out valuationmethod, except that the replacement costmethod is used forpharmacyandoperatingroominventories.

RestrictedInvestmentsNoncurrent.TheMedicalCenterhasestablishedaMortgageReserveFund in accordance with the requirements and conditions of the Federal HousingAdministration (“FHA”) Regulatory Agreement. Notwithstanding any other provision intheRegulatoryAgreement, theMortgageReserveFundmaybeusedby theHousingandUrbanDevelopmentiftheMedicalCenterisunabletomakeamortgagenotepaymentontheduedate. TheMedicalCenterisrequiredtomakecontributionstothefundbasedontheMortgageReserveFundschedule.

Capital Assets. Capital assets are stated at cost or at estimated fair value on date ofacquisition. TheMedicalCenter’scapitalizationpolicyforassetsincludesall itemswithaunit cost ofmore than $5,000 aswell as for the first year of capitalization, items in theaggregatewhosetotalcostismorethan$5,000.Depreciationoncapitalassetsiscalculated


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NOTE2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(CONTINUED)usingthestraight‐linemethodovertheestimatedusefullivesoftheassetsasindicatedinthe “EstimatedUsefulLives ofDepreciableMedical CenterAssets,”Revised2013EditionpublishedbytheAmericanMedicalCenterAssociation.Repairsandmaintenancecostsarecharged to expense as incurred. On aquarterlybasis, theMedical Center assesses long‐livedassetsinordertodeterminewhetherornotitisnecessarytoretire,replace,orimpairbasedonconditionoftheassetsandtheirintendeduse.NetDeficiency in Capital Assets. Net deficiency in capital assets represents the MedicalCenter’stotalinvestmentincapitalassets,netofoutstandingdebtrelatedtothosecapitalassets. Since the outstanding debt at June 30, 2016 and 2015 is greater than theinvestmentincapitalassets,thiscategoryofNetPositionisreportedasanegativeamountintheStatementsofNetPosition.OperatingRevenuesandExpenses. TheMedicalCenter’sstatementofrevenues,expenses,and changes innetpositiondistinguishesbetweenoperatingandnonoperating revenuesandexpenses. Operatingrevenues,suchaspatientservicerevenue,resultfromexchangetransactionsassociatedwithprovidinghealthcareservices, theMedicalCenter’sprincipalactivity. Exchangetransactionsarethose inwhicheachparty to thetransactionreceivesand gives up essentially equal values. Operating expenses are all expenses incurred toprovidehealthcareservices.NetPatientServiceRevenues. Netpatientservicerevenuesarerecordedat theestimatednet realizable amount due from patients, third‐party payors, and others for servicesrendered. Retroactive adjustments under reimbursement agreements with third‐partypayorsareaccruedonanestimatedbasis in theperiodtherelatedservicesarerenderedandadjustedinfutureperiodsasfinalsettlementsaredetermined.Contractualadjustmentsresultingfromagreementswithvariousorganizationstoprovideservices for amounts that differ from billed charges, including services underMedicare,Medicaid, and certainmanaged care programs, are recorded as deductions from patientrevenues.CharityCare.TheMedicalCenterprovidescaretopatientswhomeetcertaincriteriaunderits charity care policywithout charge or at amounts less than its established rates. TheMedical Center does not pursue collection of amounts determined to qualify as charitycare;therefore,theyaredeductedfromgrossrevenue,withtheexceptionofcopayments.NonoperatingRevenuesandExpenses. Nonoperatingrevenueincludesactivities thathavethecharacteristicsofnonexchangetransactions,suchasgovernmentleviesandsubsidies,andgiftsorincomenotdirectlyrelatedtotheprovisionofpatientcaresuchasinvestmentincome.TheserevenuestreamsarerecognizedunderGASBStatementNo.33,Accounting


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NOTE2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(CONTINUED)andFinancialReportingforNonexchangeTransactions.Investmentincomeisrecognizedintheperiodwhenitisearned.ThemilllevyisrecognizedintheperioditiscollectedbytheCounty. Bequests and contributions are recognized when all applicable eligibilityrequirements have been met. Nonoperating expenses also include interest expense onbonds, mortgage servicing fees, mortgage insurance premium, GNMA guaranty fees andothernonoperatingrevenue.SandovalCountyMillLevyTaxes.TheamountofthepropertytaxlevyisassessedannuallyonJanuary1onthevaluationofpropertyasdeterminedbytheCountyAssessorandisduein equal semi‐annual installments onNovember10 andApril10 of the next year. Taxesbecome delinquent 30days after the due date unless the original levy date has beenformally extended. Taxes are collected on behalf of the Medical Center by the CountyTreasurer and are remitted to the Medical Center in the month following collection.RevenueisrecognizedinthefiscalyearthelevyiscollectedbytheCounty.FederalBondSubsidy. TheMedical Center receives subsidypayments related to interestpayments under the federal Build America Bond and Taxable Revenue Recovery ZoneEconomic Development Bond programs. These sources of funds are accounted for asnonoperatingrevenuesandrecordedastheyareearned.Undertheprogram,theMedicalCenter applies for subsidy funds commensurate with each bond payment, so theapplicationforthesubsidyismadesemiannually. FortheyearsendedJune30,2016and2015, theMedicalCenter recognized$1,960,076and$1,998,362 in federalbond subsidyrevenue,respectively.IncomeTaxes. TheMedical Center has received a determination letter from the InternalRevenueService(IRS)thatitisanorganizationdescribedinInternalRevenueCodesection501(c)(3). As such, it is exempt from federal income tax on income generated fromactivities related to its exempt function. The Medical Center previously received adiscretionary ruling from the IRSunderRevenueProcedure95‐48, excluding it from therequirementtofilecertaininformationreturns. ChangesmadebythePensionProtectionAct removed the IRS’s discretionary authority to waive these filing requirements.However, subsequent to these changes, the Medical Center requested and was grantedstatusasa509(a)(2)ratherthana509(a)(3).ThiscurrentstatusnowexemptstheMedicalCenterfromhavingtofileanIRSForm990.Accordingly,noprovisionforincometaxeshasbeenmade.


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NOTE2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(CONTINUED)RiskManagement.TheMedicalCentersponsorsaself‐insuredhealthplan.BlueCrossandBlue Shield of NewMexico and HMO New Mexico (BCBSNM and HMONM) provideadministrativeclaimpaymentservicesfortheMedicalCenter’splan.Liabilitiesarebasedon an estimate of claims that have been incurred but not reported (IBNR) and claimsreceivedbutnotyetpaid.AtJune30,2016and2015,theestimatedamountoftheMedicalCenter’s IBNR and accrued claims was $239,884 and $241,206, respectively, which isincluded in accrued payroll. The liability for IBNR was based on actuarial analysiscalculatedusinginformationprovidedbyBCBSNM.

BeginningofFiscalYear

ClaimsandChangesinEstimates

ClaimPayments

BalanceatFiscalYear‐End

2015‐2016 $241,206 2,592,447 (2,593,769) 239,8842014‐2015 216,028 2,593,103 (2,567,925) 241,206

Classification. Certain 2015 amounts have been reclassified to conform to the 2016presentation.NOTE3. CASHANDCASHEQUIVALENTS,ANDINVESTMENTSCashandCashEquivalents

Deposits. The Medical Center’s deposits are held in demand accounts with a financialinstitution.The carrying amounts of the Medical Center’s deposits with financial institutions atJune30,2016and2015are$16,743,235and$13,179,779,respectively.BankbalancesarecategorizedatJune30,asfollows:

2016 2015

AmountinsuredbytheFederalDepositInsuranceCorporation(FDIC) $ 291,999 500,000Othercash 17,820,840 14,155,907

$ 18,112,839 14,655,907


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NOTE3. CASHANDCASHEQUIVALENTS,ANDINVESTMENTS(CONTINUED)Interest‐bearingdepositaccountsaresubjecttoFDIC’sstandarddepositinsuranceamountof$250,000.RestrictedCashandCashEquivalentsIn connection with the 2010 Financing Transaction, as a requirement of the TrustIndentureandtheFinancingAgreement,theMedicalCenterwasrequiredtoestablishtrustfunds for the deposit of restricted bondproceeds, the required capital contribution, andotherrestrictedcontributionsbytheMedicalCenter. ThefinancialstatementbalancesofthetrustfundswereasfollowsatJune30:

2016 2015

Debtservicefund $ 5,937,858 5,853,358

Debt Service Fund – Established to collect the interest income and necessary funds tomake the semi‐annual coupon payments for the bonds. This fund also includes adepository account for the proceeds received from the BuildAmericaBond andTaxableRevenueRecoveryZoneEconomicDevelopmentBondpayments.InterestRateRisk–DebtInvestments–CashandCashEquivalents. Interestrateriskistherisk that changes in interest rates will adversely affect the fair value of an investment.Currently,theMedicalCenterdoesnothaveaspecificpolicytolimititsexposuretointerestraterisk.TheMedicalCenterholdsnoinvestmentsthataresubjecttointerestraterisk.AsummaryoftherestrictedcashandcashequivalentsatJune30,2016and2015andtheirexposuretointerestrateriskisasfollows:

Fair Lessthan Fair LessthanValue 1Year Value 1Year

Itemsnotsubjecttointerestraterisk:Moneymarketfund $ 5,937,858 5,937,858 $ 5,853,358 5,853,358Itemsnotsubjecttointerestraterisk 5,937,858 5,937,858 5,853,358 5,853,358Totalrestrictedcashandcashequivalents $ 5,937,858 5,937,858 $ 5,853,358 5,853,358

June30,2016 June30,2015


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NOTE3. CASHANDCASHEQUIVALENTS,ANDINVESTMENTS(CONTINUED)Custodial Credit Risk – Debt Investments – Cash and Equivalents. For an investment,custodial credit risk is the risk that, in the event of the failure of the counterparty, theMedicalCenterwillnotbeabletorecoverthevalueofitsinvestmentsorcollateralthatisinthepossessionofanoutsideparty.AsofJune30,2016and2015,theMedicalCenterdebtinvestmentsthataresubjecttocustodialcreditrisk.



June30,2016 June30,2015

TheMedical Center’s custodial risk policy for the bond proceeds conforms to the TrustIndenture,andtheTrusteeholdstheinvestmentsinsafekeeping.CreditRisk–DebtInvestments.TheMedicalCenterisrequiredtodisclosecreditratingsofitsdebt investments inorder toassess credit risk.U.S.obligations, investmentsexplicitlyguaranteed by the U.S.government, and nondebt investments are excluded from thisrequirement. Currently, the Medical Center does not have a specific policy to limit itsexposuretocreditrisk.



June30,2016 June30,2015

Long‐TermInvestmentsInterest Rate Risk – Debt Investments – Long Term Investments. Currently, the MedicalCenterdoesnothaveaspecificpolicytolimititsexposuretointerestraterisk.TheMedicalCenterholdsnoinvestmentsthataresubjecttointerestraterisks.


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NOTE3. CASHANDCASHEQUIVALENTS,ANDINVESTMENTS(CONTINUED)AsummaryofthelongterminvestmentsatJune30,2016and2015andtheirexposuretointerestrateriskisasfollows:

FairValue

Lessthan1Year

FairValue

Lessthan1Year

Itemsnotsubjecttointerestraterisk:Moneymarketfund $ 7,411,546 7,411,546 5,404,485 5,404,485

Itemsnotsubjecttointerestraterisk 7,411,546 7,411,546 5,404,485 5,404,485

Totallong‐terminvestments $ 7,411,546 7,411,546 5,404,485 5,404,485

June30,2015June30,2016

CustodialCreditRisk–DebtInvestments.AsofJune30,2016and2015,theMedicalCenterheldnoU.S.governmentobligationsforlong‐terminvestmentpurposes.TheMedical Center’s custodial risk policy for the bond proceeds conforms to the TrustIndenture,andtheTrusteeholdstheinvestmentsinsafekeeping.CreditRisk–DebtInvestments–LongTermInvestments.TheMedicalCenterisrequiredtodisclosecreditratingsofitsdebtinvestmentsinordertoassesscreditrisk.U.S.obligations,investments explicitly guaranteed by the U.S.government, and nondebt investments areexcluded from this requirement. Currently, theMedical Center does not have a specificpolicytolimititsexposuretocreditrisk.

Rating FairValue Rating FairValueItemssubjecttocreditrisk:Moneymarketfund NotRated $ 7,411,546 NotRated $ 5,404,485Totalitemssubjecttocreditrisk 7,411,546 5,404,485

Totallong‐terminvestments $ 7,411,546 $ 5,404,485

June30,2015June30,2016


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NOTE4. CONCENTRATIONOFRISKThe Medical Center receives payment for services rendered to patients under paymentarrangementswithpayors,whichinclude:(i)MedicareandMedicaid,(ii)otherthird‐partypayors including commercial carriers and health maintenance organizations, and (iii)others.ThefollowingsummarizespatientaccountsreceivableandthepercentageofgrossaccountsreceivablefromallpayorsasofJune30: NOTE5. ESTIMATEDTHIRD‐PARTYPAYORSETTLEMENTSThe Medical Center is reimbursed by the Medicare and Medicaid programs on aprospective payment basis for hospital services, with certain items reimbursed at aninterimratewith final settlementdeterminedafter submissionofannual cost reportsbythe Medical Center. The annual cost reports are subject to audit by the MedicareAdministrative Contractor and the Medicaid audit agent. Under C.F.R. §412.300(b), theMedicalCenter ispaid at85percentof its allowableMedicare Inpatienthospital capital‐related costs through its cost report endingat least2yearsafter thehospital accepts itsfirstpatient. TheMedicalCenteracceptedits firstpatientonJuly17,2012,thusthefirstcostreportperiodbeginningatleasttwoyearsafterthisdatewouldbecostreportperiodJuly1,2014toJune30,2015.BeginningJuly1,2015,theMedicalCenterissubjecttotheprospective federal capital rate. Retroactively calculatedcontractual adjustmentsarisingunder reimbursement agreements with third‐party payors are accrued on an estimatedbasisintheperiodtherelatedservicesarerenderedandadjustedinfutureperiodsasfinalsettlements are determined. The estimatedMedicare settlements at June 30, 2016 and2015areapayableof$230,234andareceivableof$957,748,respectively.TheestimatedMedicaidsettlementsatJune30,2016and2015arereceivablesof$790,675and$555,678,respectively.

2016 2015

MedicareandMedicaid $ 24,862,322 64% $ 16,817,801 63%Otherthirdpartypayors 7,770,858 20% 3,991,134 15%Others 6,463,112 16% 5,911,240 22%

Totalpatientaccountsreceivable 39,096,292 100% 26,720,175 100%

Lessallowanceforuncollectibleaccountsandcontractualadjustments (27,495,637) (16,420,546)

Patientaccountsreceivable,net $ 11,600,655 $ 10,299,629


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NOTE6. CAPITALASSETSThemajorclassesofcapitalassetsatJune30,andrelatedactivityfortheyearthenendedareasfollows:

Beginning EndingBalance Additions Transfers Retirements Balance

UNMSandovalcapitalassets

notbeingdepreciated:

ConstructioninProgress 200,674$ 244,868 (279,764) ‐ 165,778

UNMSandovaldepreciable

capitalassets:

Buildingandbuilding

improvements 105,130,302 ‐ 102,818 ‐ 105,233,120

Buildingserviceequipment 3,505,706 ‐ 164,648 ‐ 3,670,354

Fixedequipment 3,484,347 72,163 487,625 ‐ 4,044,135

Majormoveableequipment 36,145,365 744,095 (475,327) (45,577) 36,368,556

Totaldepreciablecapitalassets 148,265,720 816,258 279,764 (45,577) 149,316,165

Lessaccumulateddepreciationfor:

Buildingandbuildingimprovements (7,744,094) (2,716,064) ‐ ‐ (10,460,158)

Buildingserviceequipment (801,357) (338,306) (4,703) ‐ (1,144,366)

Fixedequipment (687,031) (336,739) (272,571) ‐ (1,296,341)

Majormoveableequipment (17,454,852) (5,064,992) 277,274 17,852 (22,224,718)

Totalaccumulateddepreciation (26,687,334) (8,456,101) ‐ 17,852 (35,125,583)


capitalassets,net 121,578,386 (7,639,843) 279,764 (27,725) 114,190,582

UNMSandovalcapitalassets

notbeingdepreciated 200,674 244,868 (279,764) ‐ 165,778


capitalassets,atcost 148,265,720 816,258 279,764 (45,577) 149,316,165

UNMSandovaltotalcostof

capitalassets 148,466,394 1,061,126 ‐ (45,577) 149,481,943

Lessaccumulateddepreciation (26,687,334) (8,456,101) ‐ 17,852 (35,125,583)

UNMSandovalcapitalassets,net 121,779,060$ (7,394,975) ‐ (27,725) 114,356,360

YearEndedJune30,2016


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NOTE6. CAPITALASSETS(CONTINUED)

Beginning EndingBalance Additions Transfers Retirements Balance

UNMSandovalCapitalAssetsnotbeingdepreciated:Constructioninprogress $ 397,709 837,143 (1,034,178) ‐ 200,674

‐ ‐ ‐ ‐ —UNMSandovaldepreciablecapitalassets:Buildingandimprovements 104,937,402 6,725 186,175 ‐ 105,130,302Buildingserviceequipment 2,690,801 ‐ 814,905 ‐ 3,505,706Fixedequipment 2,382,123 ‐ 1,102,224 ‐ 3,484,347Majormoveableequipment 34,749,110 2,465,381 (1,069,126) ‐ 36,145,365Totaldepreciablecapitalassets 144,759,436 2,472,106 1,034,178 ‐ 148,265,720

LessAccumulatedDepreciationfor:Buildingandbuildingimprovements (5,035,587) (2,708,507) ‐ ‐ (7,744,094)Buildingserviceequipment (495,665) (305,692) ‐ ‐ (801,357)Fixedequipment (309,319) (236,641) (141,071) ‐ (687,031)Majormoveableequipment (11,225,269) (6,370,654) 141,071 ‐ (17,454,852)Totalaccumulateddepreciation (17,065,840) (9,621,494) ‐ ‐ (26,687,334)

UNMSandovaldepreciablecapitalassets,net 127,693,596 (7,149,388) 1,034,178 ‐ 121,578,386

UNMSandovalCapitalAssetsnotbeingdepreciated 397,709 837,143 (1,034,178) ‐ 200,674

UNMSandovaltotalcostofcapitalassets 145,157,145 3,309,249 ‐ ‐ 148,466,394

Lessaccumulateddepreciation (17,065,840) (9,621,494) ‐ ‐ (26,687,334)

UNMSandovalcapitalassets,net $ 128,091,305 (6,312,245) ‐ ‐ 121,779,060

YearEndedJune30,2015


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NOTE7. COMPENSATEDABSENCESQualifiedMedicalCenteremployeesareentitledtoaccruesick,holidayandannualleaveasoneinclusivePaidTimeOff(PTO)bankbasedontheirFull‐TimeEquivalent(FTE)status.Full‐timeemployeeswith zero to sevenyearsof service accrue11.07hoursofPTOeachpayperiod(36daysperannum)uptoamaximumof500hourstobeusedforsick,holidayandannualleave.Full‐timeemployeeswithyearsofserviceinexcessofsevenyearsaccrue12.61hoursofPTOeachpayperiod(41daysperannum)uptoamaximumof500hourstobe used for sick, holiday and annual leave. Part‐time employees earn PTO leave on aprorated basis each pay period. When publicized by the Medical Center each year,employeeshavetheopportunitytoexchangeforcashat80%oftheirhourlyrateallhoursaccumulatedinexcessof80hours. Attermination,employeesareeligibleforpaymentofunused accumulated hours at 100% of their regular hourly rate. Accrued PTO as ofJune30, 2016 and 2015 of $1,607,103 and $1,507,566, respectively, is computed bymultiplyingeachemployee’scurrenthourlyratebythenumberofhoursaccrued.DuringtheyearsendedJune30,2016and2015,thefollowingchangesoccurredinaccruedcompensatedabsences:Thebalancesaboveincludeannual leave,sick leave,andholidayasdisclosedabove. Theportionofaccruedcompensatedabsencesdueafteroneyearisnotmaterialand,therefore,isnotpresentedseparately.NOTE8. BONDSPAYABLEInNovember2010,theMedicalCenterissued$133,425,000inaggregateprincipalamountof its Taxable Revenue Build America Bonds (Direct Pay) (GNMA Collateralized – UNMSandovalRegionalMedicalCenterProject) Series2010Awithamaturitydateof July20,2036 and $10,000,000 in aggregate principal amount of its Taxable Revenue RecoveryZone Economic Development Bonds (Direct Pay) (GNMA Collateralized – UNM Sandoval

Balance BalanceJuly1,2015 Increase Decrease June30,2016

1,507,566$ 1,607,103 (1,507,566) 1,607,103

Balance BalanceJuly1,2014 Increase Decrease June30,2015

1,210,889$ 1,507,566 (1,210,889) 1,507,566


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NOTE8. BONDSPAYABLE(CONTINUED)RegionalMedicalCenterProject)Series2010BwithamaturitydateofJuly20,2037.TheBonds were issued pursuant to a Trust Indenture, dated as of October 1, 2010, by andbetweentheMedicalCenterandWellsFargoBank,NationalAssociation,asTrusteeforthepurposeoffinancingtheMedicalCenterfacilityandtopaycertaincostsassociatedwiththeissuanceofthebonds.ThebondswereissuedasspeciallimitedobligationsoftheMedicalCenterandaresecuredprimarilybyfullymodifiedmortgagebackedsecuritiesintheaggregateprincipalamountof $127,164,027 (the “GNMA Securities”), to be issued by Prudential Huntoon PaigeAssociates, Ltd. (the “Lender”), guaranteed as to principal and interest by GNMA, withrespecttotheMortgageNote.Under the GNMAMortgage Backed Securities Program, the GNMA Securities are a “fullymodifiedpass‐through”mortgage‐backedsecurityissuedandservicedbytheLender.ThefaceamountoftheGNMASecuritiesistobethesameamountastheoutstandingprincipalbalanceoftheMortgageNote.TheLenderisrequiredtopassthroughtotheTrustee,astheholder of the GNMA Securities, by the 15th day of each month, the monthly scheduledinstallmentsofprincipalandinterestontheMortgageNote(lesstheGNMAguaranteefeeandtheLender’sservicingfee),whetherornottheLenderreceivessuchpaymentfromtheMedicalCenterundertheMortgageNote,plusanyunscheduledprepaymentsofprincipaloftheMortgageNotereceivedbytheLender.TheGNMASecuritiesareissuedsolelyforthebenefitoftheTrusteeonbehalfoftheBondholdersandanyandallpaymentsreceivedwithrespecttotheGNMASecuritiesaresolelyforthebenefitoftheBondholders.EffectiveOctober1,2010,theMedicalCenterenteredintoaFinancingAgreementwiththeLenderandtheTrustee.UndertheFinancingAgreement,theLenderagreedtooriginateaMortgageNoteinfavoroftheLenderandsecuredbyaleaseholdmortgageontheproject.TheMortgageNoteisinsuredbytheFHApursuanttoSection242oftheNationalHousingActof1934andtoprovidesecurityfortheBonds,theTrusteewillusetheproceedsoftheBondstopurchasefromtheLendertheGNMASecurities.TheMedicalCenterhasagreedtousetheproceedsoftheMortgageNotetoacquire,construct,andequiptheconstructionoftheMedicalCenter.UnderthetermsoftheTrustIndenture,theMedicalCenterhasgrantedtotheTrusteeallrights, title, and interests to all revenues, receipts, interest, income, investment earningsandothermoniesreceivedortobereceivedbytheTrustee,includingmoniesreceivedorto be received from the GNMA Securities and all investment earnings from the GNMASecurities.UponissuanceoftheBonds,theproceedswereplacedintrustwiththeTrustee,and theproceedsare tobeused topurchase from the lender theGNMASecurities, or to


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NOTE8. BONDSPAYABLE(CONTINUED)redeem the bonds according to the various early, optional, and mandatory redemptionprovisionsoftheBonds.AsofJune30,2016and2015,thebalanceoftheMortgageNoteequaledthebalanceoftheGNMAsecurities.ThetermsoftheBondsIssuedareasfollows: Maturity Principal Interest Bond Date Amount RateSeries2010A July20,2036 $ 133,425,000 4.50%Series2010B July20,2037 $ 10,000,000 5.00%TheMedical Center is eligible to receive cash subsidy payments from the United StatesDepartmentofTreasuryequalto35%oftheinterestpayableontheBuildAmericaBonds(Series 2010A), and 45% of the interest payable on the Recovery Zone EconomicDevelopmentBonds(Series2010B),payableonorabouteachrespectiveinterestpaymentdate,whichpaymentslowertheoveralltruecostofthebondsto3.33%. PursuanttotheBudgetControlActof2011,aspostponedbytheAmericanTaxPayerReliefActof2012,thebudget sequestration impactwasa reductionof7.2%,effectiveMarch1,2013. ThishadtheeffectofchangingthesubsidypaymentfromtheUnitedStatesDepartmentofTreasuryequal to32.48%of the interestpayableon theBuildAmericaBonds(Series2010A),and41.76%oftheinterestpayableontheRecoveryZoneEconomicDevelopmentBonds(Series2010B). For Federal fiscal year 2016, beginning October 1, 2015, the sequestrationpercentagechangedslightlyto6.8%.


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NOTE8. BONDSPAYABLE(CONTINUED)The following schedule summarizes the special and scheduled mandatory redemptionrequirementsoftheSeries2010AandSeries2010BbondsasofJune30,2016:

Series2010ABonds Series2010BBonds TotalFiscalYear Principal Interest Principal Interest Principal Interest

2017 $ 3,540,000 5,304,938 ‐ 487,000 3,540,000 5,791,9382018 3,715,000 5,143,613 ‐ 487,000 3,715,000 5,630,6132019 3,890,000 4,974,525 ‐ 487,000 3,890,000 5,461,5252020 4,075,000 4,797,338 ‐ 487,000 4,075,000 5,284,3382021 4,275,000 4,611,713 487,000 4,275,000 5,098,7132022‐2026 24,645,000 19,946,588 ‐ 2,435,000 24,645,000 22,381,5882027‐2031 31,170,000 13,768,988 ‐ 2,435,000 31,170,000 16,203,9882032‐2036 39,430,000 5,955,863 ‐ 2,435,000 39,430,000 8,390,8632037‐2038 4,020,000 90,450 9,740,000 593,250 13,760,000 683,700

$ 118,760,000 64,594,016 9,740,000 10,333,250 128,500,000 74,927,266

ThebondsaresubjecttovariousredemptionprovisionsassetforthintheTrustIndenture,includingSpecialMandatoryRedemption,ScheduledMandatoryRedemption,andOptionalRedemption. The Special Mandatory Redemption provisions are contingent on variousevents, includingbutnot limitedtocircumstancesthatresult inthetrustestatereceivingearly payments on the GNMA Securities, or in the event the balance of GNMA Securitiesaftercompletionof theconstructionare lessthantheamountofoutstandingbonds. TheMedicalCentercompletedfinalendorsementoftheprojectonJune18,2014.ThebalanceoftheGNMASecuritieswaslessthantheamountoftheoutstandingbondsby$3.7million.Asaresult,onJuly15,2014,aspecialmandatoryredemptionoccurredintheamountsof$3.48million for the Series2010Abondsand$260,000 for the Series2010Bbonds. OnJuly21,2014,thescheduledmandatoryredemptionintheamountof$6.17millionfortheSeries2010Abondsoccurred.On July20, 2015, the scheduledmandatorybond redemptionpaymentwasmadeby theMedicalCenterontheSeries2010A;aprincipalpaymentof$1.67millionandaninterestpaymentof$2.75million.OnJanuary20,2016aprincipalpaymentof$1.71millionandaninterestpaymentof$2.71millionweremade.NoprincipalpaymentwasdueontheSeries2010Bbonds,butinterestpaymentsof$243,500weremadeonbothdates.TheMortgageNotebearsinterestat4.61%.TheMortgageNotehasatermof299monthsfollowingthecommencementofamortizationandmaturesonJuly1,2037. Principalandinterestarepayableinequalmonthlyinstallmentsuponcommencementofamortization.Amortgageservicingfeeof12basispointsandaGNMAguarantyfeeof13basispointsare


37

NOTE8. BONDSPAYABLE(CONTINUED)alsoincludedinthemonthlypayment,foratotalof4.86%.TheMortgageNoteissubjecttooptional prepayment beginning on January 20, 2021 or thereafter, and mandatoryprepaymentatanytimebasedontheoccurrenceofcertainevents,includingthereceiptofanymortgageinsuranceproceeds.NOTE9. NETPATIENTSERVICEREVENUESThemajorityoftheMedicalCenter’srevenueisgeneratedthroughagreementswiththird‐partypayors thatprovide for reimbursement to theMedicalCenter at amountsdifferentfromitsestablishedcharges. Approximately31%and27%of theMedicalCenter’sgrosspatient revenue for the year ended June30, 2016, was derived from the Medicare andMedicaid programs, respectively, the continuation of which are dependent upongovernmental policies and government funding. For the year ended June 30, 2015,approximately 33% and 26%were derived from the Medicare and Medicaid programs,respectively. Laws and regulations governing theMedicare andMedicaid programs areextremelycomplexandsubjecttointerpretation.Asaresult,thereisatleastareasonablepossibilitythatrecordedrevenueestimatescouldchangeasaresultofregulatoryreview.TheimplementationoftheAffordableCareActonJanuary1,2014profoundlyimpactednotonlytheproportionofpatientscoveredbyMedicaid,butitalsoaffectedthereimbursementrates paid by Medicaid for hospital services. See Note 2, Use of Estimates, for furtherdiscussionof the change inestimate for theyearended June30,2014 that impactednetpatient revenue reported in fiscal year ended June 30, 2015. Contractual adjustmentsunderthird‐partyreimbursementprogramsrepresentthedifferencebetweentheMedicalCenter’sbillingsatestablishedchargesforservicesandamountsreimbursedbythird‐partypayors.Asummaryofthebasisofreimbursementfrommajorthird‐partypayorsfollows:Medicare – Inpatientacutecareservices rendered toMedicareprogrambeneficiariesarepaid at prospectively determined rates per discharge. TheseMedical SeverityDiagnosisRelated Group (MS‐DRG) rates vary according to a patient classification system that isbased on clinical, diagnostic, and other factors. Most Medicare outpatient services areprospectively paid through Medicare’s Outpatient Prospective Payment system (OPPS).Services excluded from theOPPS andpaidunder separate fee schedules include: clinicallab, certain rehabilitation services,durablemedical equipment, renaldialysis treatments,ambulanceservices,andprofessionalfeesofphysiciansandnonphysicianpractitioners.Medicaid – Inpatient acute care services rendered to Medicaid Fee‐for‐Service (FFS)programbeneficiariesarepaidatprospectivelydeterminedratesperdischargebasedupontheMS‐DRGsystem.Theseratesvaryaccordingtoclinicalfactorsandpatientdiagnosis.


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NOTE9. NETPATIENTSERVICEREVENUES(CONTINUED)Inaddition,theMedicalCenterhasreimbursementagreementswithcertainManagedCareOrganizations(MCOs)thathavecontractedwiththeStateofNewMexicoCentennialCareprograms to administer services to enrolled Medicaid beneficiaries. The basis forreimbursement under these agreements includes prospectively determined rates (MS‐DRG) or per diem for inpatient services, and prospectively determined payments foroutpatientservices.Other–TheMedicalCenterhasalsoenteredintoreimbursementagreementswithcertaincommercial insurancecarriers,healthmaintenanceorganizations,andpreferredproviderorganizations. The basis for reimbursement under these agreements includesprospectively determined rates‐per‐discharge, discounts from established charges, andprospectivelydeterminedperdiemrates.AsummaryofnetpatientrevenuesfollowsfortheyearsendedJune30:

2016 2015

Chargesatestablishedrates $ 174,042,772 155,049,393Charitycare (3,832,040) (2,502,426)Contractualadjustments (86,263,218) (75,041,205)Provisionfordoubtfulaccounts (7,323,852) (2,750,843)

Netpatientservicerevenues $ 76,623,662 74,754,919


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NOTE10. CHARITYCARETheMedicalCentermaintains records to identifyandmonitor the levelof charity care itprovides.Theserecordsincludetheamountofchargesforegoneforservicesandsuppliesfurnishedunder its charity carepolicy. The following informationmeasures the level ofcharitycareprovidedduringtheyearsendedJune30:NOTE11. MALPRACTICEINSURANCEAsaURPEDAcorporation,UNMSandovalRegionalMedicalCenter,Inc.hasimmunityfromtort liability except as set forth in the New Mexico Tort Claims Act (NMTCA). In thisconnection,theNewMexicoLegislaturewaivedtheState’sandtheUNMSandovalRegionalMedicalCenter,Inc.’simmunityforclaimsarisingoutofnegligenceoutoftheoperationofits Medical Center, the treatment of the Medical Center’s patients, and the healthcareservicesprovidedbyUNMSandovalRegionalMedicalCenter,Inc.employees.Additionally,as described below, consistent with the provisions of URPEDA, UNM Sandoval RegionalMedicalCenter,Inc.,electedtopurchaseitsmedicalmalpractice,professionalandgeneralliabilitycoveragefromtheRiskManagementDivisionoftheStateofNewMexicoGeneralServicesDepartment(RMD),whoadministersthePublicLiabilityFundestablishedundertheNMTCA.TheNMTCAlimits,asanintegralpartofthiswaiverofimmunity,theamountofdamagesthatcanbeassessedagainstUNMSandovalRegionalMedicalCenter,Inc.onanytortclaimincluding medical malpractice, professional or general liability claims. The NMTCAprovides that total liability for all claims that arise out of a single occurrence shall notexceed$700,000setforthasfollows:(a)$200,000forrealproperty;(b)upto$300,000forpast and futuremedical andmedically relatedexpenses; and (c)up to$400,000 forpastandfuturenoneconomiclosses(suchaspainandsuffering)incurredortobeincurredbythe claimant.While the languageof theNMTCAdoesnot expresslyprovide for claimsoflossofconsortium,NewMexicoappellatecourtdecisionshaveallowedclaimants toseekloss of consortium. As a result, if loss of consortium claims are presented, those claimscannot exceed $350,000 in the aggregate. Thus, it appears that if a claim presents bothdirect claims and thirdparty claims, themaximumexposureof thePublic Liability Fundand,therefore,UNMSandovalRegionalMedicalCenter,Inc.,cannotexceed$1,050,000.TheNMTCA prohibits the award of punitive or exemplary damages against UNM SandovalRegionalMedicalCenter,Inc.

2016 2015

Chargesforegone,basedonestablishedrates $ 3,832,040 2,502,426Estimatedcostsandexpensesincurredtoprovidecharitycare 1,747,410 1,188,652

Equivalentpercentageofcharitycarechargesforegonetototalgrossrevenue 2.2% 1.6%


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NOTE11. MALPRACTICEINSURANCE(CONTINUED)TheURPEDAauthorizesURPEDAcorporationstoobtaintheirliabilitycoveragesfromRMDfor thosetortswheretheLegislaturehaswaivedtheState’s immunityuptothedamageslimits of theNMTCA, as described above, plus the cost incurred in defending any claimsand/orlawsuits(includingattorney’sfeesandexpenses),withnodeductibleandwithnoself‐insuredretentionbyUNMSandovalRegionalMedicalCenter,Inc.Asstatedpreviously,UNMSandovalRegionalMedicalCenter,Inc.,didelecttopurchase,anddidinfactpurchase,itsmedicalmalpractice,professionalandgeneralliabilitycoveragefromRMD.Asaresultofthis,UNMSandovalRegionalMedicalCenter,Inc.isfullycoveredforclaimsand/orlawsuitsrelatingtomedicalmalpracticeorprofessionalliabilityoccurringatitsMedicalCenter.NOTE12. RELATEDPARTYTRANSACTIONSThe Medical Center provides professional and purchased services to UNM and otherentitiesassociatedwithUNM.TheMedicalCenterbilledthefollowingamounts,includedaseither revenue or as an expense reduction in the accompanying statements of revenues,expenses, and changes in net position, for services rendered during the years endedJune30:

2016 2015

UNMHealthSystem $ 241,532 738,546

$ 241,532 738,546

TheMedical Center reimburses UNM Hospital and UNMMedical Group for professionalservicesincurredonbehalfoftheMedicalCenter.


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NOTE12. RELATEDPARTYTRANSACTIONS(CONTINUED)TheMedicalCenterreimbursesUNMandotherentitiesassociatedwithUNM,forthecostofsalaries of various medical and administrative personnel, malpractice insurance, andphysiciancoverageincurredonbehalfoftheMedicalCenter.TheMedicalCenterincurredexpenses, included in total expenses in the accompanying statements of revenues,expenses, and changes in net position, related to the following entities during the yearsendedJune30:

2016 2015

UniversityofNewMexico $ 716,249 477,212UNMHealthSystem 2,759,729 2,378,672UNMMedicalGroup 1,814,686 540,197

$ 5,290,664 3,396,081

Additionally,UNMMGextendedfundstotheMedicalCenterforthefundingoftheNegativeArbitrage Account fund as required by the bond rating agencies. UNMMG advanced theMedicalCenter$10,125,000inNovemberof2010. FinalendorsementwascompletedonJune18,2014.ThefinalbalanceowedtoUNMMGforthefundingontheNegativeArbitragewaspaidonJuly29,2014intheamountof$2,040,000andisreflectedinthestatementofcashflowspresentedforfiscalyear2015.UNMandtheMedicalCenterhaveentered intoaGroundLeaseunderwhich theMedicalCenter will lease approximately 18.4 acres of land from the UNM. The Ground leaseprovides for rent of $1.00 per year for the primary and extended terms of the GroundLease.TheGroundLeasefurtherprovidesthattheprimarytermoftheGroundLeasewillbe fora termof74yearsandgrants theMedicalCenter theoption torenewtheGroundLeaseforanextendedtermof25years.


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NOTE13. BENEFITPLANSThe Medical Center has a defined contribution plan covering eligible employees whichprovides retirement benefits. The name of the plan is UNM Sandoval Regional MedicalCenter403(b)RetirementPlan(thePlan).ThePlanwasadoptedonOctober1,2011.Itisaparticipant‐directeddefinedcontributionplancoveringemployeesoftheMedicalCenter.Contributionstotheplanaremadethroughemployeedeferralsonearnedcompensation.Participants may contribute, on a tax‐deferred basis, up to the annual limitations asprescribedbytheInternalRevenueService.Participantsmaydesignatealloraportionof403(b)electivedeferralcontributionsasRothelectivedeferralcontributions.Participantsmayalsomakerollovercontributionsrepresentingdistributionsfromotherqualifiedplans.Participantsdirect the investment of their contributions intovarious investment optionsoffered by the Plan. The Plan currently offers various mutual funds and an insuranceinvestmentcontractasinvestmentoptionsforparticipants.TheMedicalCentermaymakematching contributions equal to a percentage of participant contributions. If matchingcontributionsaremade, thepercentagecontributed isdeterminedby theMedicalCenter.The Medical Center may also make a discretionary contribution each plan year.Contributions are subject to regulatory limitations. The expense for the definedcontributionplanwas$680,435,$493,587and$409,204intheyearsendedJune30,2016,2015and2014,respectively.Totalemployeecontributionsunderthisplanwere$980,098,$738,157and$593,346fortheyearsendedJune30,2016,2015and2014,respectively.

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REPORTOFINDEPENDENTAUDITORSONINTERNALCONTROL

OVERFINANCIALREPORTINGANDONCOMPLIANCEANDOTHERMATTERSBASEDONANAUDITOFFINANCIALSTATEMENTSPERFORMEDINACCORDANCEWITHGOVERNMENTAUDITINGSTANDARDS

UNMSandovalRegionalMedicalCenter,Inc.BoardofDirectorsandMr.TimothyKeller,NewMexicoStateAuditorWehaveaudited,inaccordancewiththeauditingstandardsgenerallyacceptedintheUnitedStatesof America and the standards applicable to financial audits contained in Government AuditingStandards issued by the Comptroller General of the UnitedStates, the financial statements ofSandovalRegionalMedicalCenter,Inc.(SRMC),asofandfortheyearendedJune30,2016andtherelated notes to the financial statements, which collectively comprise SRMC’s basic financialstatementsandhaveissuedourreportthereondatedOctober21,2016.InternalControlOverFinancialReporting

Inplanningandperformingourauditof the financial statements,weconsideredSRMC’s internalcontrol over financial reporting (internal control) to determine the audit procedures that areappropriate in the circumstances for the purpose of expressing our opinions on the financialstatements,butnotforthepurposeofexpressinganopinionontheeffectivenessofSRMC’sinternalcontrol.Accordingly,wedonotexpressanopinionontheeffectivenessofSRMC’sinternalcontrol.A deficiency in internal control exists when the design or operation of a control does not allowmanagementoremployees,inthenormalcourseofperformingtheirassignedfunctions,toprevent,or detect and correct,misstatements on a timely basis. Amaterialweakness is a deficiency, or acombination of deficiencies, in internal control such that there is a reasonable possibility that amaterialmisstatementof theentity's financial statementswill notbeprevented, ordetectedandcorrected,onatimelybasis.Asignificantdeficiencyisadeficiency,oracombinationofdeficiencies,in internal control that is less severe than amaterial weakness, yet important enough tomeritattentionbythosechargedwithgovernance.Ourconsiderationofinternalcontrolwasforthelimitedpurposedescribedinthefirstparagraphofthis section and was not designed to identify all deficiencies in internal control that might bematerialweaknessesorsignificantdeficiencies.Giventheselimitations,duringourauditwedidnotidentifyanydeficienciesininternalcontrolthatweconsidertobematerialweaknesses.However,materialweaknessesmayexistthathavenotbeenidentified.

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UNMSandovalRegionalMedicalCenter,Inc.BoardofDirectorsandMr.TimothyKeller,NewMexicoStateAuditor ComplianceandOtherMatters

AspartofobtainingreasonableassuranceaboutwhetherSRMC’sfinancialstatementsarefreefrommaterial misstatement, we performed tests of its compliance with certain provisions of laws,regulations, contracts, andgrant agreements,noncompliancewithwhich couldhaveadirect andmaterialeffectonthedeterminationoffinancialstatementamounts.However,providinganopiniononcompliancewiththoseprovisionswasnotanobjectiveofouraudit,andaccordingly,wedonotexpresssuchanopinion.TheresultsofourtestsdisclosednoinstancesofnoncomplianceorothermattersthatarerequiredtobereportedunderGovernmentAuditingStandards.WenotedacertainmatterthatisrequiredtobereportedperSection12‐6‐5NMSA1978,thatwehavedescribedintheaccompanyingscheduleoffindingsandresponsesasitem2016‐001.SRMC’sResponsetoFindingSRMC’sresponsetothefindingidentifiedinourauditisdescribedinthescheduleoffindingsandresponses. SRMC’sresponsewasnotsubjectedtotheauditingproceduresappliedintheauditofthefinancialstatements,andaccordingly,weexpressnoopiniononthem.PurposeofthisReport

The purpose of this report is solely to describe the scope of our testing of internal control andcomplianceandtheresultsofthattesting,andnottoprovideanopinionontheeffectivenessoftheentity’sinternalcontroloroncompliance.Thisreportisanintegralpartofanauditperformedinaccordance with Government Auditing Standards in considering the entity’s internal control andcompliance.Accordingly,thiscommunicationisnotsuitableforanyotherpurpose.

Albuquerque,NewMexicoOctober21,2016

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)SCHEDULEOFFINDINGSANDRESPONSESJUNE30,20162016‐001 FORMALIZEDREVIEWOFALLSOARIANUSERS(OTHERMATTER) CRITERIATheMedicalCenter’sSoariansystemprocesses,records,andstoresinformationthat isvitaltoitsdailyoperationsandcontainsprotectedhealthinformationofitspatients.It iscriticalthataccesstothissystemisproperlymaintainedtopreventinappropriatetransactionsfromoccurring, data from being lost, and to prevent protected health information from beingreleased.CONDITIONDuringtheaudit,wenotedthattheMedicalCenterdidnotconductaformalizedreviewofallSoarian users. Although the Medical Center did conduct an ad‐hoc user access review, inwhich theyreviewedtheaccessrights forallSoarianusers, therewasnoactual formalizeduseraccessreviewbeingconductedonanannualbasis.CAUSESoarianwasimplementedinAugust2015,andthedesignandimplementationofaformalizeduseraccessreviewprocesshadnotbeencompletedatthetimeofourauditinquiries.EFFECTThereisariskofoneormoreindividualsgainingaccesstoSoarianorretainingaccessafteritshouldberevoked,potentiallyresultinginabreachofdataorprotectedhealthinformation.RECOMMENDATIONWerecommendthatmanagementcontinuestoreviewuseraccessatleastonanannualbasis.ThisreviewshouldbeformallydocumentedandincludedasparttheMedicalCenter’sofficialpoliciesandprocedures.Adepartmentalmanagerorindividualresponsibleforthefunctionaldatashouldperformthereview.MANAGEMENTRESPONSEPatient Financial Services Information Technology (PFS‐IT) staff will conduct an annualreview on 100% of user accounts in the Soarian Financials Patient Accounting system toensure proper termination of access for unused accounts and accounts where the userchangeddepartments. TheauditwillbeconductedbytheITManagerandreviewedbythePFSFinanceDirectorwithcompletionpriortoDecember31stofeachcalendaryearbeginningin 2016. A procedure regarding the annual review will be written by Management andmaintainedincoordinationwiththeDataIntegritydocument.In addition, users who have not logged into Soarian Financials for 90 days or more on aquarterlybasiswillbedisabledbaseduponinactivity.Thisprocesswillcommenceinthefallof2016andwillcontinueonaquarterlybasisthereafter.

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)SUMMARYSCHEDULEOFPRIORAUDITFINDINGSJUNE30,2016Nomatterswerereported.

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)EXITCONFERENCEJUNE30,2016AnexitconferencewasconductedonOctober20,2016,withmembersoftheboardofdirectors andmembersof SRMCmanagement.During thismeeting, the contents ofthis report were discussed with the following board members, managementpersonnel,andMossAdamsLLPrepresentativespresent:JerryGeist BoardMember

MichaelRichards MDExecutivePhysician‐in‐Chief

SteveMcKernan CEO,UNMHospitals

AvaLovell ChiefFinancialOfficer,UNMHealthSciencesCenter

DarleneFernandez ChiefFinancialOfficer,SRMC

EllaWatt ChiefFinancialOfficer,UNMHealthSystem

JamieSilva‐Steele PresidentandCEO,SRMC

LawrencePineda FinanceDirector

PamDemarest ChiefNursingOfficer,SRMC

PurviMody HealthSystemComplianceandInternalAuditOfficer

ShawnaGonzales ExecutiveDirector&Controller,Finance

CorreenBales ExecutiveDirector,HumanResourcesSRMC

PaulEchols ChiefMedicalOfficer,SRMC

DianaHeider AssistantUniversityCounsel

DeVonWiens Partner,MossAdamsLLP

JoshLewis Partner,MossAdamsLLP

UNMSandovalRegionalMedicalCenter,Inc.’smanagementpreparedthefinancialstatementsandisresponsibleforthecontents.

Documents

UNM SANDOVAL REGIONAL MEDICAL CENTER, INC. (A … · activities of UNM Sandoval Regional Medical Center (the Medical Center) as of and for the years ended June 30, 2016, 2015, and