Roswell Park Cancer Institute CorporationSection 203 Budget Filing

Fiscal Year 2013 – 2014 - PROPOSED

203.6 aPublic Authority Relationship with Unit of Government

Roswell Park Cancer Institute

The Institute was founded in 1898 and became a State Institute in 1911. In 1971, it was one of the first three institutions certified as a comprehensive cancer center by the National Cancer Institute. As such, it is committed to combat cancer through basic research, clinical

research and treatment, and professional and public education. Presently, there are 41 such centers designated in the United States. The Institute is a 133 licensed bed facility and an ambulatory care center containing 15 multidisciplinary care centers with a staff of over 3,200 members, including clinical staff physicians, residents, fellows, and research staff. The primary physical plant covers several city

blocks in downtown Buffalo.

The operation of the Institute transferred from the New York State Department of Health to the RPCI Corporation on January 1, 1999. In order to meet the demands of the changing health care marketplace and to promote the strengths and capabilities of the Institute, Chapter

5 of the Laws of 1997 added a new Title 4 to Article 10-c of the Public Authorities Law authorizing the RPCI Corporation. This legislative authorization was intended to change the Institute’s governance structure to afford it market and managerial flexibility. Among the special powers granted by the legislation to the Corporation were the powers to contract with the State to operate, manage, superintend and control the Institute, and to establish, collect, and adjust fees, rental and other charges in connection with the operation of the Institute.

Pursuant to subdivision 2 of Section 403 of the Public Health Law, added by such chapter, the Department, acting on behalf of the State, entered into an Operating Agreement with RPCI Corporation pursuant to which operating responsibility for the Institute was transferred to RPCI Corporation effective January 1, 1999, and giving RPCI Corporation substantial independence in operating the Institute, including

the power to establish operating budgets, to establish and implement strategic business plans, to create subsidiary and affiliated entities, to enter into affiliations and alliances with other health care providers and to establish, collect and adjust fees, rentals and other charges in

connection with the operation of the Institute.

Revenues generated by the Corporation as a result of operating the Institute are considered to be revenues of the State for the purpose of its bond payment, and are required to be deposited into the Roswell Park Cancer Institute Debt Service Account of the Health Income Fund for payment of debt service on the Bonds. The Department retains responsibility for paying debt service on the Bonds. After allowing for accumulation of a debt service reserve for the Institute, the remaining revenues are transferred to the Roswell Park Cancer Institute Income Account of the Health Income Fund. After allowing for a balance for refunds these revenues are, in turn, transferred to

RPCI Corporation.

RPCI Corporation’s responsibility is to ensure the fiscal and programmatic integrity of the facility. To achieve this objective, the Corporation has updated the strategic plan for the Institute which includes major programmatic and scientific, as well as, fiscal goals.

Some of the key goals include the recruitment of top-tier clinical and scientific talent; developing a methodology to monitor the effectiveness of programs and faculty; enhancing financial viability through revenue and expense controls; building a strong and profitable biotechnology transfer program in collaboration with peer facilities; emphasis on clinical and translation research, as well as developing

and implementing new clinical trials and establishing a cancer disease management and clinical outcomes program.

The Institute is a formally designated unit of the Graduate School of the University of New York at Buffalo and has numerous affiliation agreements with other educational institutions and hospitals. Training provided by the Institute under these agreements includes medical,

nursing and medical research.

Budget Projected Budgeted2013 2013 2014

Net Income before Other Changes in Net Assets (Modified Accr Basis) (25.2)$ 15.6$ 3.2$

Funds due from NYS for Clev Biolabs -$ 3.0$ -$ Funds due from NYS/RPA for BLSC project -$ 1.8$ -$ Working Capital/Other Changes of AWUIL 3.1$ (12.4)$ 8.0$ Funding of Academic Development (2.0)$ (2.7)$ (1.8)$

Annual Unrestricted Cash Impact ($24.1) $5.3 $9.4

* 2013 Budget does not include 25 Million of HEAL NY Monies, the status of this money was undetermined at the time of filing (Final New York State Budget had not been Approved). Projected 2013 includes the anticipated 25 Million of HEAL New York State Money as it was subsequently approved as part of the Final New York State Budget

ROSWELL PARK CANCER INSTITUTE CORPORATIONCash Flow Projections

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The RPCIC Budget Process Timeline

Dec Sept Oct Feb

Volumes, Grants + Inflation

Input completed for:- Operating Budgets- New Initiatives- Capital spending

Mar

Board approves

Budget

Jan AprNov

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Submit Section 203 materials to

the state

Aug

Requests received for:- New Initiatives- Operating Infrastructure- Capital spending

CEO approves

Proposed Budget/Budget Posting

per ABOGuidelines

Submit “Condensed Revenues,

Expenditures & Changes in Current Net

Assets” to ABO

Update December ABO Submission

Capital Allocations will be completed using the Following Team structure

Chief Institute Operations Officer General Counsel

Executive Vice President

Chief Clinical Operations Officer

Executive Vice President

V.P. of Finance and C.F.O.

VP for Facilities Management

Vice President Information Technology Medical Director

AdministrativeFacilities Committee IT Committee Clinical

Committee

Scientific & Prevention Committee

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Budget AssumptionsRevenue assumptions:Base Volumes: IP Admits +7.7% OP Visits +4.4%Rate Assumptions: Payor increases per contracts Governmental payor increases per regulationsOther: Includes Estimated $1.5M for sequestration

Sources of Revenues: include Private and Governmental Contracts,Grants and Donations, and Funding from New York State

Staffing: At current levels, plus: - new staff for increase in visits and admissions - New Initiatives and Strategic research initiatives

Future Collective Bargaining Costs: Bargaining Units Step Increases included at an average of 2%

Inflation: > Salaries: Steps factored in per CBA above - no COLA included > Fringe benefit - increase consistent with salaries > Pharmacy (inflation and new drugs) 7% > Medical Supplies 3% > Other Supplies 2% > Blood products 2% > Contractual Services 2%

Programmatic Goals - Continue Implementation of Strategic Research Initiatives - Continue Strategic recruiting efforts - Evaluate collaborative opportunities - ICD10 Implementation Costs of 1.6M (FY14)

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Challenges and Obstacles – External ForcesExternal forces that challenge our ability to successfully implement

Roswell’s vision for the future: Current Economic Climate

Outcome of final 2014 NYS Budget

NYS support requested and timing of when funds are received • Impact of State deficits

Recruitment - Increasing costs and competition

NIH Funding• Decreases in overall funding while competition for funds increases• Decline in American Recovery and Reinvestment Act (ARRA) funding

Managed Care• Increasing role of National players for commercial and Medicare Advantage plans• Increasing premium trends are moderating, causing payors to negotiate more aggressively to

keep medical expenses at current or moderately higher costs• Implementation of Insurance Exchanges are leading payors to seek minimal increases on small

group and Insurance Exchange product offerings to be filed in Spring 2013 for CY 2014

Federal Deficit impairs Medicare program spending

Physical capacity to meet demand for clinical services

Ability to invest in accordance with RPCI Strategic Plan

Unknown Impacts of Healthcare Reform

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203.6 e203.6 gRoswell Park Cancer Institute Corporation (PBC)

Income Statement - Modified Accrual BasisIn thousands

FY 12 FY 13 FY 13 FY 14Actual Budget Projected Budgeted

OPERATING REVENUES:Grants & contracts 2,075 2,458 1,561 1,793Patient service revenue, net 370,172 399,900 416,474 437,497NYS contributions 77,600 77,600 102,600 102,600Other revenue 9,599 8,856 8,674 8,885 TOTAL OPERATING REVENUES 459,446 488,814 529,309 550,775

OPERATING EXPENSES:Salaries 178,689 195,039 188,888 201,691Fringe Benefits 55,509 66,578 62,464 67,851Pharmacy and Supplies 107,953 116,284 121,862 130,652Utilities 7,527 9,540 7,000 8,053Purchased services and other 55,131 67,917 69,212 73,742GASB 45 impact 4,657 5,115 5,141 6,010

TOTAL OPERATING EXPENSES, EXCLUDING CAPITAL AND INTEREST 409,466 460,473 454,567 488,000EXCESS (DEFICIENCY) REVENUE OVER EXPENSES BEFORE OTHER CHANGES IN NET ASSETS 49,979 28,341 74,742 62,776

Capital Asset Outlay 15,304 41,435 40,948 52,319Interest/Principal Payment 21,472 20,706 20,832 20,945

EXCESS (DEFICIENCY) REVENUE OVER EXPENSES 13,203 (33,800) 12,962 (10,488) BEFORE NON OPERATING AND CONTRIBUTIONSOther NonOperating Revenue 537 1,251 2,599 1,013

EXCESS (DEFICIENCY) REVENUE OVER EXPENSES 13,740 (32,549) 15,561 (9,475) BEFORE CONTRIBUTIONS FOR CAPITAL Contributions for Capital projects 1,058 7,380 0 12,710EXCESS (DEFICIENCY) OF REVENUES AND CAPITAL CONTRIBUTIONS OVER EXPENDITURES 14,797 (25,169) 15,561 3,235

203.5 dRoswell Park Cancer Institute Corporation (PBC)Projected Operating Revenues - Grants and Contracts and OtherIn thousands

FY 13 FY 14 FY 15 FY 16 FY 17Projected Budget Budget Budget Budget

Other Operating Revenues:Cafeteria 1,687 1,685 1,702 1,719 1,736Parking Ramp / Surface 2,072 2,197 2,219 2,241 2,264Aids/Prison Hotline Revenue 270 270 273 275 278Rebates 1,110 835 843 852 860Other Third Party Revenue - Outreach 557 873 882 891 900Shared Services Reimbursements 934 1,281 1,294 1,307 1,320Rental Income 126 119 120 121 122CPP Physician Salary Support 472 984 1,004 1,024 1,045Other 1,446 640 647 653 660 Total Other Operating Revenues 8,673 8,885 8,983 9,083 9,184

203.5 dRoswell Park Cancer Institute Corporation (PBC)Projected Operating Revenues - Net Patient Service RevenuesDollars In Thousands

FY 13 FY 14 FY 15 FY 16 FY 17Projected Budget Budget Budget Budget

Volume StatisticsAdmits 5,488 5,909 6,034 6,156 6,281Days 38,431 39,493 40,284 41,064 41,855ALOS 6.76 6.68 6.68 6.67 6.66Visits 207,596 216,829 221,985 227,230 232,611

Direct Patient Service RevenueRPCI IP Revenue 169,161 177,704 185,186 192,944 201,088RPCI OP Revenue 192,001 208,805 219,012 232,592 243,951Other 0 (3,712) (2,260) (1,590) (554)RPCI Total 361,162 382,797 401,938 423,946 444,485

CPP IP Revenue 17,363 18,783 19,655 20,555 21,500CPP OP Revenue 26,387 28,347 29,803 31,320 32,926Other 0 (37) 680 741 808CPP Total 43,750 47,093 50,138 52,616 55,234

Total Direct Patient Service Revenue 404,912 429,890 452,076 476,562 499,719

Other RPCI Patient Service Revenue 13,648 12,045 4,138 4,072 3,996Other CPP Patient Service Revenue 2,416 3,004 2,757 1,571 1,418Total Other Patient Service Revenue 16,064 15,049 6,895 5,643 5,414

Total Net Patient Service Revenue 420,976 444,939 458,971 482,205 505,133

RPCI Provision for Bad Debts 4,718 4,995 5,242 5,519 5,772CPP Provision for Bad Debts 1,054 1,121 1,180 1,237 1,298Total Provision for Bad Debts 5,772 6,116 6,422 6,756 7,070

Total Net Patient Service Revenue Net of Provision for Bad Debt 415,204 438,823 452,549 475,449 498,063

Grants and Contracts 1,561 1,793 1,793 1,793 1,793

Total Charges for Services 416,765 440,616 454,342 477,242 499,856

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Roswell Park Cancer Institute Corporation (PBC)Detail of Salaries and Fringe and Non Personnel Service Operating Expensein Thousands

FY 13 FY 14 FY 15 FY 16 FY 17Projected Budget Budget Budget Budget

SalariesSalaries and Wage Costs 185,947 197,802 206,738 216,067 226,110 Furlough Expense/Payments (1,950) 0 300 1,908 879Overtime Pays 3,002 1,880 1,955 2,034 2,135 Premium Payments 1,890 2,010 2,090 2,174 2,282 TOTAL Personnel Service Expense 188,888 201,691 211,083 222,182 231,406

FringeNYS Retirement Expense 20,768 24,053 25,231 26,565 27,853 TIAA CREF 5,008 2,726 2,859 3,010 3,156 Health Insurance: Active 17,690 21,972 23,048 24,266 25,443 Health Insurance:GASB Payments 5,141 6,010 6,896 7,892 9,048 Other Fringe 18,997 19,099 20,035 21,094 22,117 TOTAL Fringe Expense 67,605 73,861 78,069 82,828 87,617

Note: The fringe expense includes the cash payment for retiree's health insurance, but does not include the GASB 45 accrual

Non Personnel Service Operating ExpensePharmaceuticals 81,607 87,485 92,503 101,051 110,432 Medical Supplies and Blood Products 33,191 36,326 38,279 40,380 42,554 Other Supplies 7,063 6,842 6,974 7,183 7,398 Utilities 7,000 8,053 8,254 8,750 8,903 Contracted Services 57,863 56,705 59,573 60,897 62,901 Malpractice 4,682 5,295 5,560 5,754 5,956 Other Non Personnel Service Operating Expense 6,668 11,742 7,653 6,489 5,313 TOTAL Non Personnel Service Expense 198,074 212,448 218,796 230,505 243,456

Roswell Park Cancer Institute (PBC)Reconciliation FY13 Budget to FY13 Projected Modified Accrual Basis

in Million's1 Excess (Deficiency) Revenues over Expenses (FY13 Budget) (25.2)$ 2 Expected HEAL NY money to be received Post Budget Approval 25.0$ 3 Clinical Margin - favorable to Budget 1.5$ 4 Utilities 2.5$ 5 Expected Increase in Third Party Settlements 8.6$ 6 Additional Investments in IT costs (3.6)$ 7 Timing of estimated spending on strategic investments/New Initiatives 3.9$ 9 Change in estimate for Fringe Rate 1.7$

10 Non Operating Revenues 1.3$ 11 All Other (0.2)$ 12 Projected Excess (Deficiency) Revenue over Expenses (FY13 Projected) 15.5$

203.6 f

203.6 h

Roswell Park Cancer Institute Corporation (PBC) FY 2014 Budgeted # of FTE's and # of Employees

Total # Total # Total #Functional Classification Employees Full Time FTE's

Clinical / Clinical Research / Academic 1,719.0 1,449.0 1,550.4

Scientific / Academic 212.0 159.0 163.0

Administrative 282.0 243.0 247.8

Operations 272.0 231.0 239.3

Total All Functional Areas 2,485.0 2,082.0 2,200.6

Sources of Funding:

The Source of funding for the projected workforce is:

Patient Service Revenues - Government and Private Payors

Grants and Contracts

Donations

New York State Funding

Roswell Park Cancer Institute (PBC)FY 2014 New Revenue Producing Activities

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As part of the Institute’s long range strategic plan, investments are being made in Clinical operations. These investments are critical to meeting the projected demand for oncology services and increasing revenue in RPCI’s clinical operations, which are used to support research and teaching missions at the Institute.

Major Gap Closing Program Components:$$ in Millions

Meaningful Use Revenue related to optimizing EMR system capacity use 0.9Third Party Settlements and Other 8.3Clinical margin Improvement 6.1Deferral of Investments in SRI 4.5Reduction in Estimated Pension Costs 1.0Fringe Savings from Health Insurance 1.1Increased Vacancy Factor and Other 3.3

Roswell Park Cancer Institute (PBC)FY 2013 – FY2017 Material Non-Recurring Resource

• The Institute is projecting non-recurring capital contribution revenues of approximately $0.0 million, $10.2 million, $8.2 million, $6.0 million and $5.7 million from philanthropic sources in fiscal years 2013 – 2017 respectively. These contributions are expected to assist in funding the continued growth at Roswell Park.

203.6 j

Roswell Park Cancer Institute (PBC)FY 2014 – Material Shift in Resources Between Years

• Capital projects can span multiple years. The entire project is approved prior to initiation, and due to the magnitude of certain projects there can be an approved balance to carry forward to the next fiscal year. Carry over balances are determined and approved after the start of the new fiscal year.

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Proposed Budget Projection Projection Projection

Borrowed Debt Outstanding FY 2014 FY2015 FY2016 FY2017PBC revenues are 1 DASNY Debt issuance 12/4/03pledged to repayment 2 DASNY Debt issuance 4/7/04of the follow ing DASNY 3 DASNY Debt issuance 4/7/04indebtedness issued 4 DASNY Debt issuance 5/24/05through New York State 5 DASNY Debt issuance 7/13/2011Department of Health 6 Capital lease obligations

Debt outstanding at March 31st year end 195.6$ 182.8$ 169.5$ 156.4$

Scheduled Debt Service Payment Principal Interest Principal InterestFor the Year ending March 312013 11,702$ 10,655$ 2014 12,249$ 10,089$ 2015 12,858$ 9,459$ 2016-2020 72,219$ 36,992$ 2021-2026 110,538$ 16,418$

219,566$ 83,613$ -$ -$

*All debt is issued. There is currently no proposed debt.

in Millions

ROSWELL PARK CANCER INSTITUTE CORPORATIONBorrowed Debt Outstanding projected

Bonds Capital Leasesin 000's

203.6 l

PBC revenues are pledged to repayment of the following DASNY indebtedness issued through New York State Department of Health:

1

On December 4, 2003, DASNY issued debt in the amount of $41,910,000 (RPCIC allocated 85%). Under the terms of the issuance, interest ranges from 2.0% to 5.25% per annum with interest and principal payments due through 2024. The bond proceeds were used solely to defease a portion of the outstanding 1994, 1995 and 1996 bond series.

2

On April 7, 2004, DASNY issued debt in the amount of $77,245,000 (RPCIC allocated 95.15%). Under the terms of issuance interest ranges from 2.0% to 5.0% per annum with interest and principal payments due through 2024. The bond proceeds were used solely to defease a portion of the outstanding 1994, 1995 and 1996 bond series.

3

On April 7, 2004, DASNY issued debt in the amount of $78,870,000 (RPCIC allocated 95.51%). Under the terms of issuance interest ranges from 2.0% to 5.0% per annum with interest and principal payments due through 2023. The bond proceeds were used solely to defease a portion of the outstanding 1994, 1995 and 1996 bond series.

4

On May 24, 2005, DASNY issued debt in the amount of $51,465,000 (RPCI allocated 95.51%). Under the terms of issuance interest ranges from 3.0% to 5.25% per annum with interest and principal payments due through 2026. The bond proceeds were used solely to defease a portion of the outstanding 1996 bond series.

5

On July 13, 2011, DASNY issued debt in the amount of $48,180,000 (RPCI allocated 74.85%). Under the terms of issuance interest ranges from 2.0% to 5.0% per annum with interest and principal payments due through 2025. The bond proceeds were used solely to defease a portion of the outstanding 1998 bond series.

ROSWELL PARK CANCER INSTITUTE CORPORATIONPurpose of Debt Issuances

203.6 l (cont’d)

and Debt limited levels

Debt ServiceDebt Service Pledged Percent of

Debt Service as a percentage of Pledged Revenues* FY 2014 Revenues Pledged Revenues1 DASNY Debt issuance 12/4/03 3,194$ 405,000$ 0.8%2 DASNY Debt issuance 4/7/04 10,173$ 405,000$ 2.5%3 DASNY Debt issuance 4/7/04 3,338$ 405,000$ 0.8%4 DASNY Debt issuance 5/24/05 2,500$ 405,000$ 0.6%5 DASNY Debt issuance 7/13/11 3,133$ 405,000$ 0.8%

Total 22,338$ 5.5%*Pledged revenues are def ined in accordance w ith RPCI bond documents

ROSWELL PARK CANCER INSTITUTE CORPORATIONDebt Service/Pledged Receivables

RPCI is authorized to incur additional indebtedness beyond its current levels. Should the amount of its requested indebtedness exceed 15% of amounts transferred from the Health Income Fund to RPCI in the previous year, prior written approval of the NYS Division of Budget is required. RPCI has not assumed that additional indebtedness of this magnitude will occur in its FY2014 budget. NOTE: RPCI has secured a line of credit with M&T bank to cover operational cash flow needs should NYS be late in paying its quarterly support payments to the Institute. Interest costs related to accessing the line of credit have not been included in the FY 2014 budget as we are assuming NYS support payments will occur in a timely manner.

203.6 l (cont’d)

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Budget2014

Projects funded with operating cash:Total Facilities Capital 18,766$

Strategic Initiatives, CPP & Other 4,100$

Clinical, Scientific, and Administrative Equipment 8,798$

Information Technology 8,063$

Subtotal 39,727$

Projects funded with support from outside sources Construction grant 1,332$ Genomics Pilot Program 1,100$ Clinical Science Center 10,160$

Total Capital expenditures 52,319$

Note:None of the projects is expected to have a material impact on the operating budget.IT Projects include ongoing maintenance costs which are not material to the operating budget

In Thousands (000's) FY 2014 Capital Budget Summary

Last Year Current Year Next Year(Actual) (Estimated) (Adopted) Proposed Proposed Proposed

REVENUE & FUNDING SOURCES FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017Operating Revenues Charges for Services 372,247$ 418,036$ 439,290$ 454,203$ 477,100$ 499,710$ Rental & Financing income Other Operating revenues 9,599$ 8,674$ 8,885$ 8,984$ 9,084$ 9,185$

Non-operating Revenues Investment earnings 537$ 2,599$ 1,013$ 953$ 1,781$ 2,089$ State subsidies/grants 77,600$ 102,600$ 102,600$ 77,600$ 77,600$ 77,600$ Federal subsidies/grants Municipal subsidies/grants Public authority subsidies Other Non-Operating Revenue*

Proceeds from the issuance of debtTotal Revenues and Funding Sources 459,982$ 531,908$ 551,789$ 541,740$ 565,565$ 588,584$

EXPENDITURESOperating expenditures Salaries and Wages 178,689$ 188,888$ 201,691$ 211,083$ 222,182$ 231,406$ Other Employee Benefits 60,167$ 67,605$ 73,861$ 78,069$ 82,828$ 87,617$ Professional Services and Contracts 53,291$ 64,531$ 68,447$ 67,226$ 67,386$ 68,214$ Supplies and Materials 107,953$ 121,862$ 130,652$ 137,756$ 148,615$ 160,383$ Other operating expenditures 9,367$ 11,682$ 13,348$ 13,814$ 14,504$ 14,859$

Non-operating expenditures Payment of principal on bonds and financing arrangements 11,898$ 11,701$ 12,248$ 12,858$ 13,279$ 13,055$ Interest and other fiscal charges on debt 9,574$ 9,131$ 8,697$ 8,193$ 7,685$ 7,138$ Subsidies to other public authorities Capital asset outlay (including CSC) 15,304$ 40,948$ 52,319$ 46,285$ 40,049$ 39,163$ Miscellaneous

Total Expenditures 446,243$ 516,347$ 561,264$ 575,284$ 596,528$ 621,835$

CAPITAL CONTRIBUTIONS 1,058$ -$ 12,710$ 10,740$ 5,962$ 5,688$

"Excess (deficiency) of revenues and capital contributions over expenditures" 14,797$ 15,561$ 3,235$ (22,804)$ (25,001)$ (27,563)$

CONDENSED BUDGETED REVENUES, EXPENDITURES AND CHANGES IN CURRENT NET ASSETS

in Thousands