Document_and_Entity_Informatio
Document and Entity Information | 6 Months Ended | |
Sep. 30, 2013 | Nov. 07, 2013 | |
Document And Entity Information | ' | ' |
Entity Registrant Name | 'Integrated Healthcare Holdings Inc | ' |
Entity Central Index Key | '0001051488 | ' |
Document Type | '10-Q | ' |
Document Period End Date | 30-Sep-13 | ' |
Amendment Flag | 'false | ' |
Current Fiscal Year End Date | '--03-31 | ' |
Is Entity a Well-known Seasoned Issuer? | 'No | ' |
Is Entity a Voluntary Filer? | 'No | ' |
Is Entity's Reporting Status Current? | 'Yes | ' |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Common Stock, Shares Outstanding | ' | 255,307,262 |
Document Fiscal Period Focus | 'Q2 | ' |
Document Fiscal Year Focus | '2014 | ' |
CONDENSED_CONSOLIDATED_BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (USD $) | Sep. 30, 2013 | Mar. 31, 2013 |
Current assets: | ' | ' |
Cash and cash equivalents | $3,406,000 | $3,545,000 |
Restricted cash | 5,000 | 13,000 |
Accounts receivable, net of allowance for doubtful accounts of $33,567 and $21,143, respectively | 60,077,000 | 62,821,000 |
Inventories of supplies | 6,980,000 | 6,738,000 |
Due from governmental payers | 7,775,000 | 5,882,000 |
Hospital quality assurance fee receivable | 70,210,000 | 7,690,000 |
Prepaid insurance | 1,359,000 | 115,000 |
Deferred tax assets, net | 0 | 6,328,000 |
Other prepaid expenses and current assets | 7,364,000 | 9,208,000 |
Total current assets | 157,176,000 | 102,340,000 |
Property and equipment, net | 61,706,000 | 63,988,000 |
Deferred tax assets, net | 0 | 380,000 |
Total assets | 218,882,000 | 166,708,000 |
Current liabilities: | ' | ' |
Revolving line of credit, net of discount | 18,730,000 | 29,527,000 |
Accounts payable | 57,565,000 | 62,515,000 |
Accrued compensation and benefits | 32,341,000 | 19,634,000 |
Accrued insurance retentions | 14,490,000 | 12,938,000 |
Hospital quality assurance fees payable | 11,850,000 | 7,226,000 |
Due to governmental payers | 170,000 | 179,000 |
Income taxes payable | 13,275,000 | 2,869,000 |
Other current liabilities | 4,922,000 | 4,111,000 |
Total current liabilities | 153,343,000 | 138,999,000 |
Debt, noncurrent, net of discount | 45,836,000 | 45,530,000 |
Warrant liability, noncurrent | 19,297,000 | 5,276,000 |
Capital lease obligations, net of current portion of $1,169 and $1,101 respectively | 6,174,000 | 6,789,000 |
Total liabilities | 224,650,000 | 196,594,000 |
Commitments and contingencies | ' | ' |
Integrated Healthcare Holdings, Inc. stockholders' equity (deficiency): | ' | ' |
Common stock, $0.001 par value; 800,000 shares authorized; 255,307 shares issued and outstanding | 255,000 | 255,000 |
Additional paid in capital | 62,911,000 | 62,911,000 |
Accumulated deficit | -62,343,000 | -87,365,000 |
Total Integrated Healthcare Holdings, Inc. stockholders' equity (deficiency) | 823,000 | -24,199,000 |
Noncontrolling interests | -6,591,000 | -5,687,000 |
Total stockholders' equity (deficiency) | -5,768,000 | -29,886,000 |
Total liabilities and stockholders' equity (deficiency) | $218,882,000 | $166,708,000 |
CONDENSED_CONSOLIDATED_BALANCE1
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Parenthetical) (USD $) | Sep. 30, 2013 | Mar. 31, 2013 |
In Thousands, except Share data, unless otherwise specified | ||
Current assets: | ' | ' |
Allowance for doubtful accounts | $33,567 | $21,143 |
Current liabilities: | ' | ' |
Current portion of Capial Lease Obligation | $1,169 | $1,101 |
Integrated Healthcare Holdings, Inc. stockholders' equity (deficiency): | ' | ' |
Common stock par value (in Dollars per share) | $0.00 | $0.00 |
Common stock, shares authorized | 800,000,000 | 800,000,000 |
Common stock, shares issued | 255,307,000 | 255,307,000 |
Common stock, shares outstanding | 255,307,000 | 255,307,000 |
CONDENSED_CONSOLIDATED_STATEME
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (USD $) | 3 Months Ended | 6 Months Ended | ||
In Thousands, except Share data, unless otherwise specified | Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 |
Income Statement [Abstract] | ' | ' | ' | ' |
Patient service revenues (net of contractual allowances and discounts) | $97,072 | $138,491 | $334,592 | $229,238 |
Provision for bad debts | -12,811 | -13,509 | -27,176 | -23,436 |
Net patient service revenues | 84,261 | 124,982 | 307,416 | 205,802 |
Other operating revenues | 950 | 880 | 1,759 | 1,725 |
Total operating revenue | 85,211 | 125,862 | 309,175 | 207,527 |
Operating expenses: | ' | ' | ' | ' |
Salaries and benefits | 69,343 | 53,287 | 125,406 | 106,278 |
Supplies | 13,172 | 13,978 | 27,121 | 28,029 |
Other operating expenses | 25,030 | 53,062 | 76,259 | 68,105 |
Depreciation and amortization | 2,092 | 960 | 4,209 | 1,918 |
Total Operating Expenses | 109,637 | 121,287 | 232,995 | 204,330 |
Operating income (loss) | -24,426 | 4,575 | 76,180 | 3,197 |
Other expense: | ' | ' | ' | ' |
Interest expense, net | -2,328 | -3,018 | -5,135 | -5,450 |
Loss on warrants | -7,376 | -1,125 | -14,021 | -395 |
Total Other Expense | -9,704 | -4,143 | -19,156 | -5,845 |
Income (loss) before income tax provision (benefit) | -34,130 | 432 | 57,024 | -2,648 |
Income tax provision (benefit) | -14,078 | -1,922 | 31,374 | -1,878 |
Net income (loss) | -20,052 | 2,354 | 25,650 | -770 |
Net (income) loss attributable to noncontrolling interests (Note 9) | -331 | 228 | -628 | -122 |
Net income (loss) attributable to Integrated Healthcare Holdings, Inc. | ($20,383) | $2,582 | $25,022 | ($892) |
Earnings (loss) per common share attributable to Integrated Healthcare Holdings, Inc. stockholders | ' | ' | ' | ' |
Basic | ($0.08) | $0.01 | $0.10 | $0 |
Diluted | ($0.08) | $0.01 | $0.05 | $0 |
Weighted average shares outstanding | ' | ' | ' | ' |
Basic | 255,307,000 | 255,307,000 | 255,307,000 | 255,307,000 |
Diluted | 255,307,000 | 256,987,000 | 472,878,000 | 255,307,000 |
CONDENSED_CONSOLIDATED_STATEME1
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (USD $) | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Noncontrolling Interest | Total |
In Thousands, except Share data | |||||
Beginning Balance, Amount at Mar. 31, 2013 | $255 | $62,911 | ($87,365) | ($5,687) | ($29,886) |
Beginning Balance, Shares at Mar. 31, 2013 | 255,307,000 | ' | ' | ' | ' |
Net income (loss) | ' | ' | 25,022 | 628 | 25,650 |
Noncontrolling interest distributions | ' | ' | ' | -1,532 | -1,532 |
Ending Balance, Amount at Sep. 30, 2013 | $255 | $62,911 | ($62,343) | ($6,591) | ($5,768) |
Ending Balance, Shares at Sep. 30, 2013 | 255,307,000 | ' | ' | ' | ' |
CONDENSED_CONSOLIDATED_STATEME2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (USD $) | 6 Months Ended | |
In Thousands, unless otherwise specified | Sep. 30, 2013 | Sep. 30, 2012 |
Cash flows from operating activities: | ' | ' |
Net income (loss) | $25,650 | ($770) |
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ' | ' |
Depreciation and amortization of property and equipment | 4,209 | 1,918 |
Provision for bad debts | 27,176 | 23,436 |
Amortization of debt discount | 385 | 530 |
Loss on warrants | 14,021 | 395 |
Deferred tax assets, net | 6,708 | 0 |
Changes in operating assets and liabilities: | ' | ' |
Accounts receivable | -24,432 | -24,260 |
Inventories of supplies | -242 | 169 |
Due from governmental payers | -1,893 | -2,665 |
Hospital quality assurance fees receivable | -62,520 | -20,828 |
Prepaid expenses - hospital quality assurance fees | 0 | -9,174 |
Prepaid income taxes | 0 | -1,257 |
Prepaid insurance, other prepaid expenses and current assets, and other assets | 600 | -3,125 |
Accounts payable | -5,844 | -1,209 |
Accrued compensation and benefits | 12,707 | -1,709 |
Hospital quality assurance fees payable | 4,624 | 28,519 |
Due to governmental payers | -9 | 0 |
Income taxes payable | 10,406 | 0 |
Accrued insurance retentions and other current liabilities | 1,805 | 459 |
Net cash provided by (used in) operating activities | 13,351 | -9,571 |
Cash flows from investing activities: | ' | ' |
Decrease in restricted cash | 8 | 2 |
Additions to property and equipment | -543 | -1,242 |
Net cash used in investing activities | -535 | -1,240 |
Cash flows from financing activities: | ' | ' |
Proceeds from (paydown on) revolving line of credit, net | -10,876 | 10,658 |
Noncontrolling interests distributions | -1,532 | -1,012 |
Payments on capital lease obligations | -547 | -544 |
Net cash provided by (used in) financing activities | -12,955 | 9,102 |
Net decrease in cash and cash equivalents | -139 | -1,709 |
Cash and cash equivalents, beginning of period | 3,545 | 11,829 |
Cash and cash equivalents, end of period | 3,406 | 10,120 |
Supplemental information: | ' | ' |
Cash paid for interest | 4,653 | 4,590 |
Cash paid for income taxes | $14,320 | $0 |
1_DESCRIPTION_OF_BUSINESS_AND_
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended | ||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ' | ||||||||||||||||
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ' | ||||||||||||||||
BASIS OF PRESENTATION - The accompanying unaudited condensed consolidated financial statements of Integrated Healthcare Holdings, Inc. and its wholly owned subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting. Accordingly, the accompanying unaudited condensed consolidated statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, these statements include all adjustments that are of a normal and recurring nature necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows. The results of operations for the three and six months ended September 30, 2013 are not necessarily indicative of the results for the entire 2014 fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2013 filed with the SEC on June 28, 2013. | |||||||||||||||||
The Company has determined that Pacific Coast Holdings Investment, LLC ("PCHI") (Note 9), is a variable interest entity as defined by GAAP and the Company is the primary beneficiary and, accordingly, the financial statements of PCHI are included in the accompanying unaudited condensed consolidated financial statements. | |||||||||||||||||
All significant intercompany accounts and transactions have been eliminated in consolidation. Unless otherwise indicated, all amounts included in these notes to the condensed consolidated financial statements are expressed in thousands (except per share amounts, percentages and stock option prices and values). | |||||||||||||||||
LIQUIDITY - As of September 30, 2013, the Company had a total stockholders’ deficiency of $5.8 million and working capital of $3.8 million. For the three and six months ended September 30, 2013, the Company had net income (loss) of $(20.4) million and $25.0 million, respectively. At September 30, 2013, the Company had $15.9 million in additional availability under its revolving credit facility (Note 3). Through September 30, 2013, the Company has recorded $204.1 million in revenues and incurred $94.0 million in provider fees and other expenses relating to the 2013 hospital quality assurance fee program. For the remaining term of the 2013 hospital quality assurance fee program, the Company anticipates recording approximately $39.2 million in revenues and incurring approximately $13.9 million in provider fees and other expenses (Note 11). The Company is reliant on funds received under the hospital quality assurance fee program and not receiving such funding could have a material adverse effect on its liquidity and financial position and value of its common stock. | |||||||||||||||||
DESCRIPTION OF BUSINESS - Effective March 8, 2005, the Company acquired four hospitals (the "Hospitals") from subsidiaries of Tenet Healthcare Corporation (the "Acquisition"). The Company owns and operates the four community-based hospitals located in southern California, which are: | |||||||||||||||||
● | 282-bed Western Medical Center in Santa Ana | ||||||||||||||||
● | 188-bed Western Medical Center in Anaheim | ||||||||||||||||
● | 178-bed Coastal Communities Hospital in Santa Ana | ||||||||||||||||
● | 114-bed Chapman Medical Center in Orange | ||||||||||||||||
RECLASSIFICATION FOR PRESENTATION - Certain amounts previously reported have been reclassified to conform to the current period's presentation with no impact on the reported net income (loss) of the Company. | |||||||||||||||||
CONCENTRATION OF RISK - The Hospitals are subject to licensure by the State of California and accreditation by the Joint Commission. Loss of either licensure or accreditation would impact the ability to participate in various governmental and managed care programs, which provide the majority of the Company's revenues. | |||||||||||||||||
Substantially all patient service revenues come from external customers. The largest payers are Medicare and Medicaid (including Medicare and Medicaid managed care plans), which combined accounted for 67% and 63% of the patient service revenues for the three months ended September 30, 2013 and 2012, respectively, and 76% and 60% for the six months ended September 30, 2013 and 2012, respectively. No other payers represent a significant concentration of the Company's patient service revenues. | |||||||||||||||||
The Company receives all of its inpatient service revenues from operations in Orange County, California. The economic conditions of this service area could affect the ability of patients and third-party payers to reimburse the Company for services through its effect on disposable household income and the tax base used to generate state funding for Medicaid programs. | |||||||||||||||||
USE OF ESTIMATES - The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Principal areas requiring the use of estimates include third-party cost report settlements, income taxes, accrued insurance retentions, self-insurance reserves, and net patient receivables. Management regularly evaluates the accounting policies and estimates that are used. In general, management bases the estimates on historical experience and on assumptions that it believes to be reasonable given the particular circumstances in which its Hospitals operate. Although management believes that all adjustments considered necessary for fair presentation have been included, actual results may materially vary from those estimates. | |||||||||||||||||
PATIENT SERVICE REVENUES – Patient service revenues are recognized in the period in which services are performed and are recorded based on established billing rates (gross charges) less contractual allowances and discounts, principally for patients covered by Medicare, Medicaid, managed care, and other health plans. Gross charges are retail charges. They are not the same as actual pricing, and they generally do not reflect what a hospital is ultimately paid and therefore are not displayed in the consolidated statements of operations. Hospitals are typically paid amounts that are negotiated with insurance companies or are set by the government. Gross charges are used to calculate Medicare outlier payments and to determine certain elements of payment under managed care contracts (such as stop-loss payments). Since Medicare requires that a hospital's gross charges be the same for all patients (regardless of payer category), gross charges are also what the Hospitals charge all other patients prior to the application of discounts and allowances. | |||||||||||||||||
The following is a summary of sources of patient service revenues (net of contractual allowances and discounts) before provision for doubtful accounts: | |||||||||||||||||
Three months ended September 30, | Six months ended September 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Medicare and Medicare managed care | $ | 24,196 | $ | 22,728 | $ | 47,582 | $ | 48,592 | |||||||||
Medicaid and Medicaid managed care | 35,610 | 61,732 | 196,789 | 82,997 | |||||||||||||
Managed care | 26,827 | 33,016 | 56,203 | 61,134 | |||||||||||||
Indemnity, self-pay and other | 10,439 | 21,015 | 34,018 | 36,515 | |||||||||||||
$ | 97,072 | $ | 138,491 | $ | 334,592 | $ | 229,238 | ||||||||||
The following is a summary of Medicaid and Medicaid managed care patient service revenues excluding QAF and Medicaid Disproportionate Share Hospital (“DSH”) payments: | |||||||||||||||||
Three months ended September 30, | Six months ended September 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Medicaid and Medicaid managed care | $ | 35,610 | $ | 61,732 | $ | 196,789 | $ | 82,997 | |||||||||
QAF | (7,783 | ) | (38,743 | ) | (150,001 | ) | (38,743 | ) | |||||||||
DSH | (4,196 | ) | (5,095 | ) | (7,493 | ) | (6,873 | ) | |||||||||
$ | 23,631 | $ | 17,894 | $ | 39,295 | $ | 37,381 | ||||||||||
Revenues under the traditional fee-for-service Medicare and Medicaid programs are based primarily on prospective payment systems. Discounts for retrospectively cost based revenues and certain other payments, which are based on the Hospitals' cost reports, are estimated using historical trends and current factors. Cost report settlements for retrospectively cost-based revenues under these programs are subject to audit and administrative and judicial review, which can take several years until final settlement of such matters are determined and completely resolved. Estimates of settlement receivables or payables related to a specific year are updated periodically and at year end and at the time the cost report is filed with the fiscal intermediary. Typically no further updates are made to the estimates until the final Notice of Program Reimbursement is received, at which time the cost report for that year has been audited by the fiscal intermediary. There could be a time lag of several years between the submission of a cost report and receipt of the Final Notice of Program Reimbursement. Since the laws, regulations, instructions and rule interpretations governing Medicare and Medicaid reimbursement are complex and change frequently, the estimates recorded by the Hospitals could change by material amounts. The Company has established settlement payables of $170 and $179 as of September 30 and March 31, 2013, respectively. | |||||||||||||||||
The Hospitals receive supplemental payments from the State of California to support indigent care (Medicaid Disproportionate Share Hospital payments or "DSH") and from the California Medical Assistance Commission ("CMAC") under the SB 1100 and SB 1255 programs. The Hospitals received (repaid) supplemental payments of $4 and $(600) during the three months ended September 30, 2013 and 2012, respectively, and $5.6 million and $4.1 million during the six months ended September 30, 2013 and 2012, respectively. The related revenue recorded for the three months ended September 30, 2013 and 2012 was $4.2 million and $5.1 million, respectively, and $7.5 million and $6.9 million for the six months ended September 30, 2013 and 2012, respectively. As of September 30 and March 31, 2013, estimated DSH receivables were $7.8 million and $5.9 million, respectively, which are reflected as due from government payers in the accompanying unaudited condensed consolidated balance sheets. | |||||||||||||||||
Revenues under managed care plans, including Medicare and Medicaid managed care plans (with patient service revenues of $20.6 million and $19.7 million for the three months ended September 30, 2013 and 2012, respectively, and $40.4 million and $43.3 million for the six months ended September 30, 2013 and 2012, respectively) are based primarily on payment terms involving predetermined rates per diagnosis, per-diem rates, discounted fee-for-service rates and/or other similar contractual arrangements. These revenues are also subject to review and possible audit by the payers. The payers are billed for patient services on an individual patient basis. An individual patient's bill is subject to adjustment on a patient-by-patient basis in the ordinary course of business by the payers following their review and adjudication of each particular bill. The Hospitals estimate the discounts for contractual allowances utilizing billing data on an individual patient basis. Management believes the estimation and review process allows for timely identification of instances where such estimates need to be revised. The Company does not believe there were any adjustments to estimates of individual patient bills that were material to patient service revenues. | |||||||||||||||||
The Hospitals provide charity care to patients whose income level is below 300% of the Federal Poverty Level. Patients with income levels between 300% and 350% of the Federal Poverty Level qualify to pay a discounted rate under AB 774 based on various government program reimbursement levels. Patients without insurance are offered assistance in applying for Medicaid and other programs they may be eligible for, such as state disability, Victims of Crime, or county indigent programs. Patient advocates from the Hospitals' Medical Eligibility Program ("MEP") screen patients in the hospital and determine potential linkage to financial assistance programs. They also expedite the process of applying for these government programs. The estimated costs of charity care (based on direct and indirect costs as a ratio of gross uncompensated charges associated with providing care to charity patients) for the three months ended September 30, 2013 and 2012 were approximately $1.7 million and $2.5 million, respectively, and $4.0 million and $4.6 million for the six months ended September 30, 2013 and 2012, respectively. | |||||||||||||||||
The Company is not aware of any material claims, disputes, or unsettled matters with any payers that would affect revenues that have not been adequately provided for in the accompanying unaudited condensed consolidated financial statements. | |||||||||||||||||
PROVISION FOR BAD DEBTS - The Company provides for accounts receivable that could become uncollectible by establishing an allowance to reduce the carrying value of such receivables to their estimated net realizable value. The Hospitals estimate this allowance based on the aging of their accounts receivable, historical collections experience for each type of payer and other relevant factors. There are various factors that can impact the collection trends, such as changes in the economy, which in turn have an impact on unemployment rates and the number of uninsured and underinsured patients, volume of patients through the emergency department, the increased burden of copayments to be made by patients with insurance and business practices related to collection efforts. These factors continuously change and can have an impact on collection trends and the estimation process. | |||||||||||||||||
The Company's policy is to attempt to collect amounts due from patients, including copayments and deductibles due from patients with insurance, at the time of service while complying with all federal and state laws and regulations, including, but not limited to, the Emergency Medical Treatment and Labor Act ("EMTALA"). Generally, as required by EMTALA, patients may not be denied emergency treatment due to the inability to pay. Therefore, until the legally required medical screening examination is complete and stabilization of the patient has begun, services are performed prior to the verification of the patient's insurance, if any. In nonemergency circumstances or for elective procedures and services, it is the Hospitals' policy, when appropriate, to verify insurance prior to a patient being treated. | |||||||||||||||||
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances. | |||||||||||||||||
LETTER OF CREDIT – At September 30 and March 31, 2013, the Company had an outstanding letter of credit totaling $761. This letter of credit correspondingly reduces the Company’s borrowing availability under its revolving line of credit (Note 3). | |||||||||||||||||
RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS – The following is a summary of the principal components of accounts receivable and due from/to government payers as of September 30 and March 31, 2013: | |||||||||||||||||
September 30, | March 31, | ||||||||||||||||
2013 | 2013 | ||||||||||||||||
Accounts receivable: | |||||||||||||||||
Patient accounts receivable | $ | 93,644 | $ | 83,964 | |||||||||||||
Allowance for doubtful accounts | (33,567 | ) | (21,143 | ) | |||||||||||||
Accounts receivable, net | $ | 60,077 | $ | 62,821 | |||||||||||||
Due from government payers: | |||||||||||||||||
DSH | $ | 7,775 | $ | 5,882 | |||||||||||||
$ | 7,775 | $ | 5,882 | ||||||||||||||
Due to government payers: | |||||||||||||||||
Settlement payables | $ | 170 | $ | 179 | |||||||||||||
$ | 170 | $ | 179 | ||||||||||||||
The Company’s self-pay collection rate, which is the blended collection rate for uninsured and balance after insurance accounts receivable, was approximately 6.1% and 6.5% as of September 30 and March 31, 2013, respectively. These self-pay collection rates include payments made by patients, including co-payments and deductibles paid by patients with insurance. As of September 30 and March 31, 2013, the allowance for doubtful accounts for self-pay uninsured was 95.2% and 95.2%, respectively, of self-pay uninsured patient accounts receivable. As of September 30 and March 31, 2013, the allowance for doubtful accounts for self-pay balance after insurance was 76.1% and 78.0%, respectively, of self-pay balance after insurance patient accounts receivable, consisting primarily of co-pays and deductibles owed by patients with insurance. As of September 30 and March 31, 2013, the allowance for doubtful accounts for managed care was 16.8% and 20.3%, respectively, of managed care patient accounts receivable. | |||||||||||||||||
Receivables from patients who are potentially eligible for Medicaid are classified as Medicaid pending under the MEP, with appropriate contractual allowances recorded. If the patient does not qualify for Medicaid, the receivables are reclassified to charity care and written off, or they are reclassified to self-pay and adjusted to their net realizable value through the provision for bad debts. Reclassifications of pending Medicaid accounts to self-pay do not typically have a material impact on the results of operations as the estimated Medicaid contractual allowances initially recorded are not materially different than the estimated provision for bad debts recorded when the accounts are reclassified. All accounts classified as pending Medicaid, as well as certain other governmental receivables, over the age of 90 days were reserved in contractual allowances as of September 30 and March 31, 2013 based on historical collections experience. | |||||||||||||||||
INVENTORIES OF SUPPLIES - Inventories of supplies are valued at the lower of weighted average cost or market. | |||||||||||||||||
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost, less accumulated depreciation and any impairment write-downs related to assets held and used. Additions and improvements to property and equipment are capitalized at cost. Expenditures for maintenance and repairs are charged to expense as incurred. Capital leases are recorded at the beginning of the lease term as property and equipment and a corresponding lease liability is recognized. The value of the property and equipment under capital lease is recorded at the lower of either the present value of the minimum lease payments or the fair value of the asset. Such assets, including improvements, are amortized over the shorter of the lease term or their estimated useful life, where applicable. | |||||||||||||||||
The Company uses the straight-line method of depreciation for buildings and improvements, and equipment over their estimated useful lives of 25 years, and 3 to 15 years, respectively. | |||||||||||||||||
LONG-LIVED ASSETS - The Company evaluates its long-lived assets for possible impairment whenever circumstances indicate that the carrying amount of the asset, or related group of assets, may not be recoverable from estimated future cash flows. Fair value estimates are derived from established market values of comparable assets or internal calculations of estimated undiscounted future net cash flows. The estimates of future net cash flows are based on assumptions and projections believed by the Company to be reasonable and supportable. These assumptions take into account patient volumes, changes in payer mix, revenue, and expense growth rates and changes in legislation and other payer payment patterns. | |||||||||||||||||
FAIR VALUE MEASUREMENTS - The Company's financial assets and liabilities recorded in the unaudited condensed consolidated balance sheets include cash and cash equivalents, restricted cash, receivables, debt, accounts payable, and other liabilities, all of which are recorded at book value which approximates fair value. | |||||||||||||||||
GAAP has established a hierarchy for ranking the quality and reliability of the information used to determine fair values and requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories: | |||||||||||||||||
Level 1: | Unadjusted quoted market prices in active markets for identical assets or liabilities. | ||||||||||||||||
Level 2: | Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. | ||||||||||||||||
Level 3: | Unobservable inputs for the asset or liability. | ||||||||||||||||
The Company utilizes the best available information in measuring fair value. Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company currently has no financial or nonfinancial assets or liabilities subject to fair value measurement on a recurring basis except for warrants issued in April 2010 and February 2013 (Note 4). | |||||||||||||||||
The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis and where they are classified within the hierarchy as of September 30 and March 31, 2013: | |||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||||||
Warrant liability at September 30, 2013 | $ | 19,297 | – | – | $ | 19,297 | |||||||||||
Warrant liability at March 31, 2013 | $ | 5,276 | – | – | $ | 5,276 | |||||||||||
Warrant liability - fair value measurements using significant unobservable inputs (Level 3) | |||||||||||||||||
Balance at March 31, 2013 | $ | 5,276 | |||||||||||||||
Change in fair value of warrant liability included in earnings | 6,645 | ||||||||||||||||
Balance at June 30, 2013 | 11,921 | ||||||||||||||||
Change in fair value of warrant liability included in earnings | 7,376 | ||||||||||||||||
Balance at September 30, 2013 | $ | 19,297 | |||||||||||||||
Additional quantitative information about Level 3 fair value measurements is discussed in Note 4. | |||||||||||||||||
WARRANTS - The Company has entered into complex transactions that contain warrants (Notes 3 and 4). If an instrument (or an embedded feature) that has the characteristics of a derivative instrument is indexed to an entity’s own stock, it is still necessary to evaluate whether it is classified in stockholders’ equity (or would be classified in stockholders’ equity if it were a freestanding instrument). The Company has concluded that the warrants should be classified as liabilities as the exercise price is subject to a weighted average ratchet down provision if the Company subsequently sells shares at a price lower than the then exercise price. | |||||||||||||||||
INCOME (LOSS) PER COMMON SHARE – Income (loss) per share is calculated under two different methods, basic and diluted. Basic income (loss) per share is calculated by dividing the net income (loss) by the weighted average shares of common stock outstanding during the period. Diluted income (loss) per share is calculated by dividing the net income (loss) by the weighted average shares of common stock outstanding during the period and dilutive potential shares of common stock. Dilutive potential shares of common stock, as determined under the treasury stock method, consist of shares of common stock issuable upon exercise of stock warrants or options, net of shares of common stock assumed to be repurchased by the Company from the exercise proceeds (Note 8). | |||||||||||||||||
INCOME TAXES - Deferred income tax assets and liabilities are determined based on the differences between the book and tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws using the asset and liability method. The Company assesses the realization of deferred tax assets to determine whether an income tax valuation allowance is required. The Company has recorded a 100% valuation allowance on its net deferred tax assets since they did not meet the more-likely-than-not threshold. | |||||||||||||||||
There is a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. | |||||||||||||||||
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and California. Certain tax attributes carried over from prior years continue to be subject to adjustment by taxing authorities. Any penalties or interest arising from federal or state taxes are recorded as a component of the Company’s income tax provision. | |||||||||||||||||
SEGMENT REPORTING - The Company operates in one line of business, the provision of healthcare services through the operation of general hospitals and related healthcare facilities. The Company's Hospitals generate substantially all of its net patient service revenues. | |||||||||||||||||
The Company's four Hospitals and related healthcare facilities operate in one geographic region in Orange County, California. There are similarities in the region's economic characteristics and the nature of the Hospitals' operations, the regulatory environment in which they operate and the manner in which they are managed. This region is an operating segment, as defined by GAAP. In addition, the Company's Hospitals and related healthcare facilities share certain resources and benefit from many common clinical and management practices. Accordingly, the Company aggregates the facilities into a single reportable operating segment. |
2_PROPERTY_AND_EQUIPMENT
2. PROPERTY AND EQUIPMENT | 6 Months Ended | ||||||||
Sep. 30, 2013 | |||||||||
Property, Plant and Equipment [Abstract] | ' | ||||||||
NOTE 2 - PROPERTY AND EQUIPMENT | ' | ||||||||
Property and equipment consists of the following: | |||||||||
September 30, | March 31, | ||||||||
2013 | 2013 | ||||||||
Buildings | $ | 36,536 | $ | 36,536 | |||||
Land and improvements | 13,523 | 13,523 | |||||||
Equipment | 30,462 | 28,534 | |||||||
Assets under capital leases | 13,263 | 13,267 | |||||||
93,784 | 91,860 | ||||||||
Less accumulated depreciation | (32,078 | ) | (27,872 | ) | |||||
Property and equipment, net | $ | 61,706 | $ | 63,988 | |||||
Accumulated depreciation on assets under capital leases as of September 30 and March 31, 2013 was $6.9 million and $6.2 million, respectively. | |||||||||
The Hospitals are located in an area near active and substantial earthquake faults. The Hospitals carry earthquake insurance with a policy limit of $50.0 million. A significant earthquake could result in material damage and temporary or permanent cessation of operations at one or more of the Hospitals. | |||||||||
The State of California has imposed hospital seismic safety requirements. Under these requirements, the Hospitals must meet stringent seismic safety criteria in the future. In addition, there could be other remediation costs pursuant to this seismic retrofit. | |||||||||
The State of California has a seismic review methodology known as HAZUS. The HAZUS methodology may preclude the need for some structural modifications. All four Hospitals requested HAZUS review and received a favorable notice pertaining to structural reclassification. All Hospital buildings, with the exception of one (an administrative building), have been deemed compliant until January 1, 2030 for both structural and nonstructural retrofit. The Company does not have an estimate of the cost to remediate the seismic requirements for the administrative building as of September 30, 2013. | |||||||||
There are additional requirements that must be complied with by 2030. The costs of meeting these requirements have not yet been determined. Compliance with seismic ordinances will be costly and could have a material adverse effect on the Company's cash flow. In addition, remediation could possibly result in certain environmental liabilities, such as asbestos abatement. |
3_DEBT
3. DEBT | 6 Months Ended | ||||||||
Sep. 30, 2013 | |||||||||
Debt Disclosure [Abstract] | ' | ||||||||
NOTE 3 - DEBT | ' | ||||||||
As of September 30, 2013, the Company had the following Credit Agreements: | |||||||||
— | A $47.277 million Term Loan issued under the $80.0 million Restated Credit Agreement by and among the Company, Silver Point Finance, LLC and its affiliate, SPCP Group, LLC (together with Silver Point Finance, LLC, “Silver Point”), and PCHI and Ganesha Realty, LLC, as Credit Parties, bearing an interest rate of LIBOR plus 10%, with the LIBOR floor set at 2% (12% at September 30, 2013). If any event of default occurs and continues, the lender can increase the interest rate by 5% per year. As of September 30, 2013, the Company was in compliance with all financial covenants. The stated maturity date for this Restated Credit Agreement is April 13, 2016. | ||||||||
— | A $35.0 million Revolving Credit Agreement by and among the Company and MidCap Funding IV, LLC, as assigned to it from MidCap Financial, LLC, as agent and a lender, bearing an interest rate of 4.25% plus LIBOR, with a 2.5% floor, per year (6.75% at September 30, 2013) and an unused commitment fee of 0.5% per year ($19.1 million outstanding balance at September 30, 2013). For purposes of calculating interest, all payments the Company makes on the Revolving Credit Agreement are subject to a five business day clearance period. As of September 30, 2013, the Company was in compliance with all financial covenants. The stated maturity date for the Revolving Credit Agreement is March 25, 2016. At September 30, 2013, the Company had $15.9 million in additional availability under this facility. | ||||||||
The Company's outstanding debt consists of the following: | |||||||||
September 30, | March 31, | ||||||||
2013 | 2013 | ||||||||
Current: | |||||||||
Revolving line of credit | $ | 19,124 | $ | 30,000 | |||||
Discount | (394 | ) | (473 | ) | |||||
$ | 18,730 | $ | 29,527 | ||||||
Noncurrent: | |||||||||
Term loan | $ | 47,277 | $ | 47,277 | |||||
Discount | (1,441 | ) | (1,747 | ) | |||||
$ | 45,836 | $ | 45,530 |
4_COMMON_STOCK_WARRANTS
4. COMMON STOCK WARRANTS | 6 Months Ended | ||||||||||||
Sep. 30, 2013 | |||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' | ||||||||||||
NOTE 4 - COMMON STOCK WARRANTS | ' | ||||||||||||
A summary of the warrants outstanding at September 30 and March 31, 2013 is presented as follows. | |||||||||||||
Shares issuable | Weighted- | Expiration | |||||||||||
under warrants | average | date | |||||||||||
exercise price | |||||||||||||
Outstanding, September 30 and March 31, 2013 | 405,000 | $ | 0.07 | 13-Apr-16 | |||||||||
On April 13, 2010 the Company issued three-year warrants (the “Omnibus Warrants”) to purchase its common stock at an exercise price of $0.07 per share in the following denominations: 139.0 million shares to KPC or its designees and 96.0 million shares to its Term Loan lender, Silver Point (SPCP Group, LLC and SPCP Group IV, LLC) or its designees. The Omnibus Warrants also provide the holders with certain pre-emptive, information and registration rights. | |||||||||||||
In addition, on April 13, 2010, the Company issued a three-year warrant (the “Release Warrant”) to acquire up to 170.0 million shares of common stock at $0.07 per share to Dr. Chaudhuri who facilitated a release enabling the Company to recover amounts due from its prior lender and a $1.0 million reduction in principal of its outstanding debt, among other benefits to the Company. The Release Warrant also provides the holder with certain pre-emptive, information and registration rights. | |||||||||||||
On February 7, 2013, in connection with the Restated Credit Agreement, the Company entered into the following transactions involving warrants: | |||||||||||||
The Company entered into a Warrant Repurchase Agreement with SPCP Group IV, LLC pursuant to which it repurchased the outstanding common stock warrant issued to SPCP Group IV, LLC on or about April 13, 2010 (the “Cancelled Warrant”). The Cancelled Warrant (part of the Omnibus Warrants) entitled the holder to purchase an aggregate of 16.8 million shares of the Company’s common stock at an exercise price of $0.07 per share. The Company repurchased the Cancelled Warrant for a purchase price of $0.12 per share minus the exercise price of $0.07 per share resulting in a net purchase price of $0.05 per share multiplied by 16.8 million shares for an aggregate purchase price of $840.9. | |||||||||||||
Immediately following the warrant repurchase, the Company issued a new common stock warrant (the “New Warrant”) to SPCP Group, LLC for a price of $0.05 per share (an aggregate price of $840.9) on the same terms as the Cancelled Warrant entitling the holder to purchase an aggregate of 16.8 million shares of common stock at an exercise price of $0.07 per share, except that the New Warrant expires on April 13, 2016. | |||||||||||||
Also simultaneous with the transactions described above, the Company extended the expiration date from April 13, 2013 to April 13, 2016 for the Omnibus Warrants issued to KPC and the remaining held by Silver Point (to purchase 79.2 million shares) and the Release Warrant issued to Dr. Chaudhuri. The extension of the warrant expiration date was intended to conform the terms of the warrants to that of the Restated Credit Agreement. | |||||||||||||
The Company assessed the amended credit agreement entered into in August 2012 and February 2013 under the provisions of ASC 470-50 and determined that the debt amendments should be accounted for as a debt modification. Accordingly, the recorded change in fair value as of February 7, 2013, totaling $534, of the New Warrant and the Omnibus Warrant held by SPCP Group, LLC was recognized as a component of the debt discount on the Term Loan (Note 3) and will be amortized to interest expense over the term of the debt agreement using the effective interest method. | |||||||||||||
As of September 30 and March 31, 2013, the fair value of the Company’s outstanding warrants was $19.3 million and $5.3 million, respectively. The loss related to the change in fair value of the Company’s outstanding warrants for the three months ended September 30, 2013 and 2012 was $7.4 million and $1.1 million, respectively, and $14.0 million and $395 for the six months ended September 30, 2013 and 2012, respectively. | |||||||||||||
The fair value of warrants issued by the Company is estimated using the Black-Scholes valuation model, which it believes is the appropriate valuation method under the circumstances. Since the Company’s stock is thinly traded, the expected volatility is based on an analysis of its stock and the stock of eight other publicly traded companies that own hospitals. | |||||||||||||
The risk-free interest rate is based on the average yield on U.S. Treasury notes with maturity commensurate with the terms of the warrants. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not anticipate paying cash dividends in the foreseeable future. The assumptions used in the Black-Scholes valuation model are as follows: | |||||||||||||
30-Sep-13 | 31-Mar-13 | ||||||||||||
Expected dividend yield | 0.00% | 0.00% | |||||||||||
Risk-free interest rate | 0.50% | 0.40% | |||||||||||
Expected volatility | 37.90% | 39.90% | |||||||||||
Expected term (in years) | 2.54 | 3.05 |
5_INCOME_TAXES
5. INCOME TAXES | 6 Months Ended |
Sep. 30, 2013 | |
Income Tax Disclosure [Abstract] | ' |
NOTE 5 - INCOME TAXES | ' |
The utilization of net operating loss (“NOL”) and credit carryforwards is limited under the provisions of the Internal Revenue Code (“IRC”) Section 382 and similar state provisions. Section 382 of the IRC of 1986 generally imposes an annual limitation on the amount of NOL carryforwards that may be used to offset taxable income where a corporation has undergone significant changes in stock ownership. In fiscal year 2009, the Company entered into the amended purchase agreement which resulted in a change in control. The Company conducted an analysis and determined that it is subject to significant IRC Section 382 limitations. For both Federal and state tax purposes, the Company's utilization of NOL and credit carryforwards is subject to significant IRC Section 382 limitations. The Company evaluates its ability to utilize the net operating losses each period with regard to the limitations imposed under IRC 382 and also considering the continuing expiration of statutes of limitation for prior years; and in the prior year determined that a portion of the federal and state net operating losses were no longer realizable, and removed from the schedule of deferreds those net operating losses in excess of the IRC 382 limitation and also considering prior years statutes now closed. | |
The difference between the reported income tax provision and the amount computed by multiplying income (loss) before income tax provision (benefit) in the accompanying unaudited condensed consolidated statements of operations for the three and six months ended September 30, 2013 and 2012 by the statutory federal income tax rate primarily relates to the impact of the valuation allowance reserving certain net deferred assets, permanently nondeductible expenses, state and local income taxes, and variable interest entity. | |
The application of FASB Interpretation Number 18 requires the Company to compute the interim period income tax provision (benefit) by applying the estimated annual effective tax rate to the income (loss) from continuing operations for the three and six months ended September 30, 2013, which resulted in the recognition of a tax (benefit) expense for the three and six months ended September 30, 2013, respectively. | |
The Company evaluated its historical and projected sources of income to determine the extent to which the net deferred tax assets projected at September 30, 2013 could be realized and, based on this analysis, the Company concluded that there was not sufficient positive evidence to support further realization of its net deferred tax assets, and therefore, as of September 30, 2013, will maintain a 100% valuation allowance against its net deferred assets. | |
The Company’s federal income tax returns for the tax years ended March 31, 2011 and 2012 are currently under examination by the Internal Revenue Service. The Company does not expect that the results of these examinations will have a material effect on its financial condition or results of operations. | |
PCHI TAX STATUS – PCHI is a limited liability company. PCHI's taxable income or loss will flow through to its owners and be their separate responsibility. Accordingly, the accompanying unaudited condensed consolidated financial statements do not include any amounts for the income tax expense or benefit, or liabilities related to PCHI's income or loss. |
6_STOCK_INCENTIVE_PLAN
6. STOCK INCENTIVE PLAN | 6 Months Ended | ||||||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ' | ||||||||||||||||||||
NOTE 6 - STOCK INCENTIVE PLAN | ' | ||||||||||||||||||||
The Company's 2006 Stock Incentive Plan (the "Plan"), which is shareholder-approved, permits the grant of share options to its employees and board members for up to a maximum aggregate of 12.0 million shares of common stock. In addition, as of the first business day of each calendar year in the period 2007 through 2015, the maximum aggregate number of shares shall be increased by a number equal to one percent of the number of shares of common stock of the Company outstanding on December 31 of the immediately preceding calendar year. Accordingly, as of September 30, 2013, the maximum aggregate number of shares under the Plan was 26.1 million. The Company believes that such awards better align the interests of its employees with those of its shareholders. In accordance with the Plan, incentive stock options, nonqualified stock options, and performance based compensation awards may not be granted at less than 100 percent of the estimated fair market value of the common stock on the date of grant. Incentive stock options granted to a person owning more than 10 percent of the voting power of all classes of stock of the Company may not be issued at less than 110 percent of the fair market value of the stock on the date of grant. Option awards generally vest based on 3 years of continuous service (1/3 of the shares vest on the twelve month anniversary of the grant date, and an additional 1/12 of the shares vest on each subsequent fiscal quarter-end of the Company following such twelve month anniversary). Certain option awards provide for accelerated vesting if there is a change of control, as defined. The option awards have 7-year contractual terms. | |||||||||||||||||||||
When the measurement date is certain, the fair value of each option grant is estimated on the date of grant using the Black-Scholes valuation model. Since there is limited historical data with respect to both pre-vesting forfeiture and post-vesting termination, the expected life of the options was determined utilizing the simplified method, whereby the expected term is calculated by taking the sum of the vesting term plus the original contractual term and dividing that quantity by two. | |||||||||||||||||||||
No options were granted or exercised during the three and six months ended September 30, 2013 and 2012. All outstanding options were fully vested as of September 30 and March 31, 2013. | |||||||||||||||||||||
A summary of stock option activity for the six months ended September 30, 2013 is presented as follows. | |||||||||||||||||||||
Shares | Weighted- | Weighted- | Weighted- | Aggregate | |||||||||||||||||
average | average | average | intrinsic | ||||||||||||||||||
exercise | grant date | remaining | value | ||||||||||||||||||
price | fair value | contractual | |||||||||||||||||||
term | |||||||||||||||||||||
(years) | |||||||||||||||||||||
Outstanding, March 31, 2013 | 7,595 | $ | 0.18 | ||||||||||||||||||
Granted | – | $ | – | $ | – | ||||||||||||||||
Exercised | – | $ | – | ||||||||||||||||||
Forfeited or expired | (70 | ) | $ | 0.26 | |||||||||||||||||
Outstanding, September 30, 2013 | 7,525 | $ | 0.18 | 1.2 | $ | 75 | |||||||||||||||
Exercisable at September 30, 2013 | 7,525 | $ | 0.18 | 1.2 | $ | 75 |
7_RETIREMENT_PLAN
7. RETIREMENT PLAN | 6 Months Ended |
Sep. 30, 2013 | |
Retirement Plan | ' |
NOTE 7 - RETIREMENT PLAN | ' |
The Company has a 401(k) plan for its employees. All employees with 90 days of service are eligible to participate, unless they are covered by a collective bargaining agreement which precludes coverage. The Company matches employee contributions up to 3% of the employee's compensation, subject to IRS limits. During the three months ended September 30, 2013 and 2012, the Company incurred plan related expenses of $820 and $833, respectively, and $1.6 million and $1.6 million during the six months ended September 30, 2013 and 2012, respectively. These expenses are included in salaries and benefits in the accompanying unaudited condensed consolidated statements of operations. At September 30 and March 31, 2013, accrued compensation and benefits in the accompanying unaudited condensed consolidated balance sheets included $2.5 million and $4.1 million, respectively, in accrued employer contributions. |
8_INCOME_LOSS_PER_SHARE
8. INCOME (LOSS) PER SHARE | 6 Months Ended | ||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||
Income Tax Disclosure [Abstract] | ' | ||||||||||||||||
NOTE 8 - INCOME (LOSS) PER SHARE | ' | ||||||||||||||||
Income (loss) per share is calculated under two different methods, basic and diluted. Basic income (loss) per share is calculated by dividing the net income (loss) by the weighted average shares of common stock outstanding during the period. Diluted income (loss) per share is calculated by dividing the net income (loss) by the weighted average shares of common stock outstanding during the period and dilutive potential shares of common stock. Dilutive potential shares of common stock, as determined under the treasury stock method, consist of shares of common stock issuable upon exercise of stock warrants or options, net of shares of common stock assumed to be repurchased by the Company from the exercise proceeds. | |||||||||||||||||
Stock options and warrants aggregating approximately 6 million shares and 411 million shares, respectively, were not included in the diluted calculation for the six months ended September 30, 2013 and the three months ended September 30, 2012 since they were anti-dilutive. Since the Company incurred a loss for the three months ended September 30, 2013 and the six months ended September 30, 2012, the potential shares of common stock consisting of approximately 413 million shares and 413 million shares, respectively, issuable under warrants and stock options were not included in the diluted calculations since they were anti-dilutive. Income (loss) per share for the three and six months ended September 30, 2013 and 2012 was computed as shown below. | |||||||||||||||||
Three months ended September 30, | Six months ended September 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Numerator: | |||||||||||||||||
Net income (loss) attributable to Integrated Healthcare Holdings, Inc. | $ | (20,383 | ) | $ | 2,582 | $ | 25,022 | $ | (892 | ) | |||||||
Denominator: | |||||||||||||||||
Weighted average common shares | 255,307 | 255,307 | 255,307 | 255,307 | |||||||||||||
Dilutive options | – | 1,680 | 217,571 | – | |||||||||||||
Denominator for diluted calculation | 255,307 | 256,987 | 472,878 | 255,307 | |||||||||||||
Income (loss) per share - basic | $ | (0.08 | ) | $ | 0.01 | $ | 0.1 | $ | (0.00 | ) | |||||||
Income (loss) per share - diluted | $ | (0.08 | ) | $ | 0.01 | $ | 0.05 | $ | (0.00 | ) |
9_VARIABLE_INTEREST_ENTITY
9. VARIABLE INTEREST ENTITY | 6 Months Ended | ||||||||
Sep. 30, 2013 | |||||||||
Variable Interest Entity | ' | ||||||||
NOTE 9 - VARIABLE INTEREST ENTITY | ' | ||||||||
Concurrent with the close of the Acquisition, PCHI simultaneously acquired title to substantially all of the real property acquired by the Company in the Acquisition. The Company received $5.0 million and PCHI guaranteed the Company's $47.277 million term loan. The Company remains primarily liable as the borrower under the $47.277 million term loan notwithstanding its guarantee by PCHI. The $47.277 million term loan is cross-collateralized by substantially all of the Company's assets and all of the real property of the Hospitals. All of the Company's operating activities are directly affected by the real property that was sold to PCHI, which is a related party entity that is affiliated with the Company through common ownership and control. As of September 30, 2013, PCHI was owned 51% by various physician investors and 49% by Ganesha, which is managed by Dr. Chaudhuri (majority stockholder in the Company). | |||||||||
The Company entered into a lease agreement dated March 7, 2005 (amended and restated as of April 13, 2010) under which it leased back from PCHI all of the real estate that it transferred to PCHI (Note 13). The amended lease terminates on the 25-year anniversary of the original lease (March 7, 2005), grants the Company the right to renew for one additional 25-year period, and requires combined annual base rental payments of $8.3 million for all the properties. However, until PCHI refinances the related $47.277 million term loan, the annual base rental payments are reduced to $7.3 million. In addition, the Company offsets, against its rental payments owed to PCHI, interest payments that it makes on the related $47.277 million term loan. Lease payments to PCHI and offsetting interest payments are eliminated in consolidation. | |||||||||
GAAP defines variable interest entities (“VIE”) as entities with a level of invested equity that is not sufficient to fund future activities to permit them to operate on a stand-alone basis, or whose equity holders lack certain characteristics of a controlling financial interest. Then, for entities identified as a VIE, the guidance sets forth a model to a primary beneficiary based on an assessment of which party to a VIE, if any, bears a majority of the exposure to expected losses, or stands to gain from a majority of its expected returns and has the power to direct activities of the VIE that impacts economic performance. The primary beneficiary of a VIE should consolidate the VIE. | |||||||||
The Company determined that it provides the majority of financial support to PCHI through various sources including lease payments, remaining primarily liable under the $47.277 million term loan, and cross-collateralization of the Company's non-real estate assets to secure the $47.277 million term loan. The Company concluded that PCHI is a VIE and it is the primary beneficiary. Accordingly, the financial statements of PCHI are included in the accompanying unaudited condensed consolidated financial statements. | |||||||||
PCHI's assets, liabilities, and deficiency are set forth below. | |||||||||
September 30, | March 31, | ||||||||
2013 | 2013 | ||||||||
Cash | $ | 184 | $ | 147 | |||||
Property, net | 39,052 | 39,696 | |||||||
Other | 118 | 49 | |||||||
Total assets | $ | 39,354 | $ | 39,892 | |||||
Debt ($47,277, net of discount) (as guarantor) | $ | 45,836 | $ | 45,530 | |||||
Other | 468 | 488 | |||||||
Total liabilities | 46,304 | 46,018 | |||||||
Deficiency | (6,950 | ) | (6,126 | ) | |||||
Total liabilities and accumulated deficit | $ | 39,354 | $ | 39,892 | |||||
As noted above, PCHI is a guarantor on the $47.277 million term loan should the Company not be able to perform. PCHI's total liabilities (before debt discount of $1.4 million) represent the Company's maximum exposure to loss. Additionally, the Company is responsible for seismic remediation under the terms of the lease agreement (Notes 2 and 13). | |||||||||
PCHI rental income and the Company’s related rental expense of $2.0 million and $1.9 million for the three months ended September 30, 2013 and 2012, respectively, and $4.0 million and $3.9 million for the six months ended September 30, 2013 and 2012, respectively, were eliminated upon consolidation. |
10_RELATED_PARTY_TRANSACTIONS
10. RELATED PARTY TRANSACTIONS | 6 Months Ended |
Sep. 30, 2013 | |
Related Party Transactions [Abstract] | ' |
NOTE 10 - RELATED PARTY TRANSACTIONS | ' |
The Company leases substantially all of the real property of the acquired Hospitals from PCHI which is owned by various physician investors and Ganesha, which is managed by Dr. Chaudhuri. As of September 30 and March 31, 2013, Dr. Chaudhuri and Mr. Thomas were the beneficial holders of an aggregate of 447.5 million shares of the outstanding stock of the Company. As described in Note 9, PCHI is a variable interest entity and the Company is the primary beneficiary, accordingly, the Company has consolidated the financial statements of PCHI in the accompanying unaudited condensed consolidated financial statements. |
11_HOSPITAL_QUALITY_ASSURANCE_
11. HOSPITAL QUALITY ASSURANCE FEES (QAF) | 6 Months Ended |
Sep. 30, 2013 | |
Hospital Quality Assurance Fees Qaf | ' |
NOTE 11 - HOSPITAL QUALITY ASSURANCE FEES ("QAF") | ' |
In October 2009, the Governor of California signed legislation supported by the hospital industry to impose a provider fee on general acute care hospitals that, combined with federal matching funds, would be used to provide supplemental Medicaid payments to hospitals. The state submitted the plan to the Centers for Medicare and Medicaid Services (“CMS”) for a required review and approval process, and certain changes in the plan were required by CMS. Legislation amending the fee program to reflect the required changes was passed by the legislature and signed by the Governor on September 8, 2010. Among other changes, the legislation leaves distribution of “pass-through” payments received by Medicaid managed care plans that will be paid to hospitals under the program to the discretion of the plans. The hospital quality assurance fee (“QAF”) program created by this legislation initially provided payments for up to 21 months retroactive to April 2009 and expiring on December 31, 2010 (“2010 QAF”). In February 2011, CMS gave final approval for the 2010 QAF. During fiscal year 2011, the Company recognized $87.2 million in revenue and recorded expenses of $47.8 million relating to the 2010 QAF. | |
In December 2011, CMS gave final approval for the extension of the QAF for the nine month period from January 1 through June 30, 2011 (“2011 QAF”). Accordingly, for the year ended March 31, 2012 the Company recognized $31.9 million in revenue and recorded expenses of $15.9 million relating to the 2011 QAF. | |
In June 2012, CMS conditionally approved the extension of the QAF for the thirty month period from July 1, 2011 through December 31, 2013 (“2013 QAF”). In June 2012, the California State Legislature amended the hospital fee statute to recognize separate CMS approval of the fee-for-service portion and managed care portion of the 2013 QAF, which was further clarified in legislation approved by the governor of California in September 2012. As a result, during the year ended March 31, 2013, the Company recognized revenue of $54.2 million and expenses of $52.5 million relating to the 2013 QAF for the periods from July 1, 2011 through March 31, 2013. | |
In May 2013, CMS approved the managed care portion of the 2013 QAF for the period from July 1, 2011 through June 30, 2012. On June 26, 2013, CMS approved the managed care portion of the 2013 QAF for the period from July 1, 2012 through June 30, 2013. As a result, during the three months ended June 30, 2013, the Company recognized revenue of $142.2 million and expenses of $33.5 million relating to the 2013 QAF for the periods from July 1, 2011 through June 30, 2013. During the three months ended September 30, 2013, the Company recognized revenue of $7.8 million and expenses of $8.0 million relating to the 2013 QAF for the period from July 1, 2013 through September 30, 2013. | |
Through September 30, 2013, the Company has recorded $204.1 million in revenues and incurred $94.0 million in provider fees and other expenses relating to the 2013 QAF. For the remaining term of the 2013 QAF, the Company anticipates recording approximately $39.2 million in QAF revenues ($31.2 million for the managed care portion and $8.0 million for the fee-for-service portion) and incurring approximately $13.9 million in QAF related expenses. | |
The Company cannot provide any assurances in connection with CMS’s final managed care approval of the 2013 QAF for the period from July 1, 2013 to December 31, 2013. | |
In October 2013, the Governor of California signed legislation that would continue the QAF program for the period from January 1, 2014 through December 31, 2016. The program is subject to CMS review and approval. |
12_ELECTRONIC_HEALTH_RECORDS_I
12. ELECTRONIC HEALTH RECORDS INCENTIVE PROGRAM | 6 Months Ended |
Sep. 30, 2013 | |
Electronic Health Records Incentive Program | ' |
NOTE 12 - ELECTRONIC HEALTH RECORDS INCENTIVE PROGRAM | ' |
Provisions of the American Recovery and Reinvestment Act of 2009 provide incentive payments for the adoption and meaningful use of certified electronic health record (EHR) technology. The Medicare EHR incentive program provides incentive payments to eligible hospitals (and certain other providers) that are meaningful users of certified EHRs. The Medicaid EHR incentive program provides incentive payments to eligible hospitals (and certain other providers) for efforts to adopt, implement, upgrade, or meaningfully use certified EHR technology. | |
CMS has established the final rule which requires eligible providers in their first year of participation in the Medicaid incentive payment program to demonstrate that they have adopted (acquired, purchased, or secured access to), or implemented, or upgraded to certified EHR technology in order to qualify for an incentive payment. During the second and subsequent years of the program, eligible providers are required to meet other criteria, including meaningful use, to receive additional funds. The Company has been awarded a total amount of $13.6 million under the Medicaid EHR incentive program, which will be earned and received over a four year period. The Company adopted certified EHR technology and it recognized other income of $6.8 million relative to the first year under the Medicaid EHR incentive program during fiscal year 2012. |
13_COMMITMENTS_AND_CONTINGENCI
13. COMMITMENTS AND CONTINGENCIES | 6 Months Ended | ||||||||
Sep. 30, 2013 | |||||||||
Commitments and Contingencies Disclosure [Abstract] | ' | ||||||||
NOTE 13 - COMMITMENTS AND CONTINGENCIES | ' | ||||||||
INFORMATION TECHNOLOGY SYSTEMS – On July 1, 2011, the Company entered into software and services agreements with McKesson Technologies Inc. (“McKesson”) to upgrade the Company’s information technology systems. | |||||||||
Under the agreements, McKesson will provide the Company with a variety of services, including new software implementation and education/training services for the Company’s personnel, software maintenance services and professional services related to movement and migration of data from legacy systems. McKesson will also furnish to the Company and maintain new hardware to accommodate the upgraded software and systems. The new hardware will include computers and servers, among other things, and will include installation, testing, and ongoing maintenance. The Company has entered into the arrangement to enhance its clinical information systems and upgrade its billing and revenue management information systems. | |||||||||
The agreements will initially run for a period of five years, and the recurring services may be renewed by the Company for successive periods. The agreements do not provide that they may be terminated by the Company prior to the initial expiration date. The agreements provide for one-time fees and recurring fees which aggregate a total of $22.0 million. Approximately 60% of the fees are for one-time charges, while the balance is for recurring services. As of September 30, 2013 the Company completed conversion of all of its facilities to the McKesson system. The Company is also continuing to test and develop system applications where necessary. | |||||||||
OPERATING LEASES AND LONG TERM LEASE COMMITMENT WITH VARIABLE INTEREST ENTITY – On April 13, 2010, the Company and PCHI entered into a Second Amendment to Amended and Restated Triple Net Hospital Building Lease (the “2010 Lease Amendment”). Under the 2010 Lease Amendment, the annual base rent to be paid by the Company to PCHI was increased from $5.4 million to $7.3 million. The base rent is subject to an annual Consumer Price Index increase on January 1 of each year; such increase shall not be less than 2% or more than 6% per year. The annual base rent is currently $7.8 million. If PCHI refinances the $47.277 million term loan, the annual base rent will increase to $8.3 million. This lease commitment with PCHI is eliminated in consolidation. | |||||||||
CAPITAL LEASES - In connection with the Acquisition, the Company also assumed the leases for the Chapman facility, which include buildings and land with terms that were extended concurrently with the assignment of the leases to December 31, 2023. The Company leases equipment under capital leases expiring at various dates through 2017. Assets under capital leases with a net book value of $6.4 million and $7.1 million are included in the accompanying unaudited condensed consolidated balance sheets as of September 30 and March 31, 2013, respectively. Interest rates used in computing the net present value of the lease payments are based on the interest rates implicit in the leases. | |||||||||
INSURANCE – The Company accrues for estimated general and professional liability claims, to the extent not covered by insurance, when they are probable and reasonably estimable. The Company has purchased as primary coverage a claims-made form insurance policy for general and professional liability risks. Estimated losses within general and professional liability retentions from claims incurred and reported, along with incurred but not reported (“IBNR”) claims, are accrued based upon projections and are discounted to their net present value using an interest rate of 5.0%. To the extent that subsequent claims information varies from estimates, the liability is adjusted in the period such information becomes available. As of September 30 and March 31, 2013, the Company had accrued $12.1 million and $10.6 million, respectively, which is comprised of $5.9 million and $5.5 million, respectively, in incurred and reported claims, along with $6.2 million and $5.1 million, respectively, in estimated IBNR. Estimated insurance recoveries of $2.6 million and $2.1 million are included in other prepaid expenses and current assets as of September 30 and March 31, 2013, respectively. | |||||||||
The Company has purchased statutory coverage insurance to fund its obligations under its workers compensation program. The Company has a large deductible rating plan program. The workers compensation program is a prefunded program, subject to a $250 deductible, per occurrence/loss limit. The prefunded program is subject to an annual adjustment until all losses are closed. The Company accrues for estimated workers compensation claims, to the extent not covered by insurance, when they are probable and reasonably estimable. The ultimate costs related to this program include expenses for deductible amounts associated with claims incurred and reported in addition to an accrual for the estimated expenses incurred in connection with IBNR claims. Claims are accrued based upon projections and are discounted to their net present value using an interest rate of 5.0%. To the extent that subsequent claims information varies from estimates, the liability is adjusted in the period such information becomes available. As of September 30 and March 31, 2013, the Company had accrued $544 and $500, respectively, comprised of $279 and $200, respectively, in incurred and reported claims, along with $265 and $300, respectively, in estimated IBNR. | |||||||||
In addition, the Company has a self-insured health benefits plan for its employees. As a result, the Company has established and maintained an accrual for IBNR claims arising from self-insured health benefits provided to employees. The Company’s IBNR accruals at September 30 and March 31, 2013 were based upon projections. The Company determines the adequacy of this accrual by evaluating its limited historical experience and trends related to both health insurance claims and payments, information provided by its insurance broker and third party administrator, and industry experience and trends. The accrual is an estimate and is subject to change. Such change could be material to the Company’s unaudited condensed consolidated financial statements. As of September 30 and March 31, 2013, the Company had accrued $1.8 million and $1.9 million, respectively, in estimated IBNR. | |||||||||
The Company has also purchased excess liability policies with aggregate limits of $25 million. The excess liability policies provide coverage in excess of the primary layer and applicable retentions for insured liability risks such as general and professional liability, auto liability, and workers compensation (employers liability). | |||||||||
As of September 30, 2013, the Company finances various insurance policies at an interest rate of 4.1% per annum. The Company incurred finance charges relating to such policies of $12 and $13 for the three months ended September 30, 2013 and 2012, respectively, and $23 and $25 for the six months ended September 30, 2013 and 2012, respectively. As of September 30 and March 31, 2013, the accompanying unaudited condensed consolidated balance sheets include the following balances relating to the financed insurance policies. | |||||||||
September 30, | March 31, | ||||||||
2013 | 2013 | ||||||||
Prepaid insurance | $ | 1,359 | $ | 115 | |||||
Accrued insurance premiums | $ | – | $ | 69 | |||||
(Included in other current liabilities) | |||||||||
CLAIMS AND LAWSUITS – The Company and the Hospitals are subject to various legal proceedings, most of which relate to routine matters incidental to operations. The results of these claims cannot be predicted, and it is possible that the ultimate resolution of these matters, individually or in the aggregate, may have a material adverse effect on the Company's business (both in the near and long term), financial position, results of operations, or cash flows. Although the Company defends itself vigorously against claims and lawsuits and cooperates with investigations, these matters (1) could require payment of substantial damages or amounts in judgments or settlements, which individually or in the aggregate could exceed amounts, if any, that may be recovered under insurance policies where coverage applies and is available, (2) cause substantial expenses to be incurred, (3) require significant time and attention from the Company's management, and (4) could cause the Company to close or sell the Hospitals or otherwise modify the way its business is conducted. The Company accrues for claims and lawsuits when an unfavorable outcome is probable and the amount is reasonably estimable. However, management cannot express an opinion as to the ultimate amounts, if any, of the Company’s liability, nor is it possible to estimate what litigation-related costs will be in future periods. |
1_DESCRIPTION_OF_BUSINESS_AND_1
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended | ||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ' | ||||||||||||||||
BASIS OF PRESENTATION | ' | ||||||||||||||||
The accompanying unaudited condensed consolidated financial statements of Integrated Healthcare Holdings, Inc. and its wholly owned subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting. Accordingly, the accompanying unaudited condensed consolidated statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, these statements include all adjustments that are of a normal and recurring nature necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows. The results of operations for the three and six months ended September 30, 2013 are not necessarily indicative of the results for the entire 2014 fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2013 filed with the SEC on June 28, 2013. | |||||||||||||||||
The Company has determined that Pacific Coast Holdings Investment, LLC ("PCHI") (Note 9), is a variable interest entity as defined by GAAP and the Company is the primary beneficiary and, accordingly, the financial statements of PCHI are included in the accompanying unaudited condensed consolidated financial statements. | |||||||||||||||||
All significant intercompany accounts and transactions have been eliminated in consolidation. Unless otherwise indicated, all amounts included in these notes to the condensed consolidated financial statements are expressed in thousands (except per share amounts, percentages and stock option prices and values). | |||||||||||||||||
LIQUIDITY | ' | ||||||||||||||||
LIQUIDITY - As of September 30, 2013, the Company had a total stockholders’ deficiency of $5.8 million and working capital of $3.8 million. For the three and six months ended September 30, 2013, the Company had net income (loss) of $(20.4) million and $25.0 million, respectively. At September 30, 2013, the Company had $15.9 million in additional availability under its revolving credit facility (Note 3). Through September 30, 2013, the Company has recorded $204.1 million in revenues and incurred $94.0 million in provider fees and other expenses relating to the 2013 hospital quality assurance fee program. For the remaining term of the 2013 hospital quality assurance fee program, the Company anticipates recording approximately $39.2 million in revenues and incurring approximately $13.9 million in provider fees and other expenses (Note 11). The Company is reliant on funds received under the hospital quality assurance fee program and not receiving such funding could have a material adverse effect on its liquidity and financial position and value of its common stock. | |||||||||||||||||
DESCRIPTION OF BUSINESS | ' | ||||||||||||||||
Effective March 8, 2005, the Company acquired four hospitals (the "Hospitals") from subsidiaries of Tenet Healthcare Corporation (the "Acquisition"). The Company owns and operates the four community-based hospitals located in southern California, which are: | |||||||||||||||||
● | 282-bed Western Medical Center in Santa Ana | ||||||||||||||||
● | 188-bed Western Medical Center in Anaheim | ||||||||||||||||
● | 178-bed Coastal Communities Hospital in Santa Ana | ||||||||||||||||
● | 114-bed Chapman Medical Center in Orange | ||||||||||||||||
RECLASSIFICATION FOR PRESENTATION | ' | ||||||||||||||||
Certain amounts previously reported have been reclassified to conform to the current period's presentation with no impact on the reported net income (loss) of the Company. | |||||||||||||||||
CONCENTRATION OF RISK | ' | ||||||||||||||||
CONCENTRATION OF RISK - The Hospitals are subject to licensure by the State of California and accreditation by the Joint Commission. Loss of either licensure or accreditation would impact the ability to participate in various governmental and managed care programs, which provide the majority of the Company's revenues. | |||||||||||||||||
Substantially all patient service revenues come from external customers. The largest payers are Medicare and Medicaid (including Medicare and Medicaid managed care plans), which combined accounted for 67% and 63% of the patient service revenues for the three months ended September 30, 2013 and 2012, respectively, and 76% and 60% for the six months ended September 30, 2013 and 2012, respectively. No other payers represent a significant concentration of the Company's patient service revenues. | |||||||||||||||||
The Company receives all of its inpatient service revenues from operations in Orange County, California. The economic conditions of this service area could affect the ability of patients and third-party payers to reimburse the Company for services through its effect on disposable household income and the tax base used to generate state funding for Medicaid programs. | |||||||||||||||||
USE OF ESTIMATES | ' | ||||||||||||||||
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Principal areas requiring the use of estimates include third-party cost report settlements, income taxes, accrued insurance retentions, self-insurance reserves, and net patient receivables. Management regularly evaluates the accounting policies and estimates that are used. In general, management bases the estimates on historical experience and on assumptions that it believes to be reasonable given the particular circumstances in which its Hospitals operate. Although management believes that all adjustments considered necessary for fair presentation have been included, actual results may materially vary from those estimates. | |||||||||||||||||
PATIENT SERVICE REVENUES | ' | ||||||||||||||||
PATIENT SERVICE REVENUES – Patient service revenues are recognized in the period in which services are performed and are recorded based on established billing rates (gross charges) less contractual allowances and discounts, principally for patients covered by Medicare, Medicaid, managed care, and other health plans. Gross charges are retail charges. They are not the same as actual pricing, and they generally do not reflect what a hospital is ultimately paid and therefore are not displayed in the consolidated statements of operations. Hospitals are typically paid amounts that are negotiated with insurance companies or are set by the government. Gross charges are used to calculate Medicare outlier payments and to determine certain elements of payment under managed care contracts (such as stop-loss payments). Since Medicare requires that a hospital's gross charges be the same for all patients (regardless of payer category), gross charges are also what the Hospitals charge all other patients prior to the application of discounts and allowances. | |||||||||||||||||
The following is a summary of sources of patient service revenues (net of contractual allowances and discounts) before provision for doubtful accounts: | |||||||||||||||||
Three months ended September 30, | Six months ended September 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Medicare and Medicare managed care | $ | 24,196 | $ | 22,728 | $ | 47,582 | $ | 48,592 | |||||||||
Medicaid and Medicaid managed care | 35,610 | 61,732 | 196,789 | 82,997 | |||||||||||||
Managed care | 26,827 | 33,016 | 56,203 | 61,134 | |||||||||||||
Indemnity, self-pay and other | 10,439 | 21,015 | 34,018 | 36,515 | |||||||||||||
$ | 97,072 | $ | 138,491 | $ | 334,592 | $ | 229,238 | ||||||||||
The following is a summary of Medicaid and Medicaid managed care patient service revenues excluding QAF and Medicaid Disproportionate Share Hospital (“DSH”) payments: | |||||||||||||||||
Three months ended September 30, | Six months ended September 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Medicaid and Medicaid managed care | $ | 35,610 | $ | 61,732 | $ | 196,789 | $ | 82,997 | |||||||||
QAF | (7,783 | ) | (38,743 | ) | (150,001 | ) | (38,743 | ) | |||||||||
DSH | (4,196 | ) | (5,095 | ) | (7,493 | ) | (6,873 | ) | |||||||||
$ | 23,631 | $ | 17,894 | $ | 39,295 | $ | 37,381 | ||||||||||
Revenues under the traditional fee-for-service Medicare and Medicaid programs are based primarily on prospective payment systems. Discounts for retrospectively cost based revenues and certain other payments, which are based on the Hospitals' cost reports, are estimated using historical trends and current factors. Cost report settlements for retrospectively cost-based revenues under these programs are subject to audit and administrative and judicial review, which can take several years until final settlement of such matters are determined and completely resolved. Estimates of settlement receivables or payables related to a specific year are updated periodically and at year end and at the time the cost report is filed with the fiscal intermediary. Typically no further updates are made to the estimates until the final Notice of Program Reimbursement is received, at which time the cost report for that year has been audited by the fiscal intermediary. There could be a time lag of several years between the submission of a cost report and receipt of the Final Notice of Program Reimbursement. Since the laws, regulations, instructions and rule interpretations governing Medicare and Medicaid reimbursement are complex and change frequently, the estimates recorded by the Hospitals could change by material amounts. The Company has established settlement payables of $170 and $179 as of September 30 and March 31, 2013, respectively. | |||||||||||||||||
The Hospitals receive supplemental payments from the State of California to support indigent care (Medicaid Disproportionate Share Hospital payments or "DSH") and from the California Medical Assistance Commission ("CMAC") under the SB 1100 and SB 1255 programs. The Hospitals received (repaid) supplemental payments of $4 and $(600) during the three months ended September 30, 2013 and 2012, respectively, and $5.6 million and $4.1 million during the six months ended September 30, 2013 and 2012, respectively. The related revenue recorded for the three months ended September 30, 2013 and 2012 was $4.2 million and $5.1 million, respectively, and $7.5 million and $6.9 million for the six months ended September 30, 2013 and 2012, respectively. As of September 30 and March 31, 2013, estimated DSH receivables were $7.8 million and $5.9 million, respectively, which are reflected as due from government payers in the accompanying unaudited condensed consolidated balance sheets. | |||||||||||||||||
Revenues under managed care plans, including Medicare and Medicaid managed care plans (with patient service revenues of $20.6 million and $19.7 million for the three months ended September 30, 2013 and 2012, respectively, and $40.4 million and $43.3 million for the six months ended September 30, 2013 and 2012, respectively) are based primarily on payment terms involving predetermined rates per diagnosis, per-diem rates, discounted fee-for-service rates and/or other similar contractual arrangements. These revenues are also subject to review and possible audit by the payers. The payers are billed for patient services on an individual patient basis. An individual patient's bill is subject to adjustment on a patient-by-patient basis in the ordinary course of business by the payers following their review and adjudication of each particular bill. The Hospitals estimate the discounts for contractual allowances utilizing billing data on an individual patient basis. Management believes the estimation and review process allows for timely identification of instances where such estimates need to be revised. The Company does not believe there were any adjustments to estimates of individual patient bills that were material to patient service revenues. | |||||||||||||||||
The Hospitals provide charity care to patients whose income level is below 300% of the Federal Poverty Level. Patients with income levels between 300% and 350% of the Federal Poverty Level qualify to pay a discounted rate under AB 774 based on various government program reimbursement levels. Patients without insurance are offered assistance in applying for Medicaid and other programs they may be eligible for, such as state disability, Victims of Crime, or county indigent programs. Patient advocates from the Hospitals' Medical Eligibility Program ("MEP") screen patients in the hospital and determine potential linkage to financial assistance programs. They also expedite the process of applying for these government programs. The estimated costs of charity care (based on direct and indirect costs as a ratio of gross uncompensated charges associated with providing care to charity patients) for the three months ended September 30, 2013 and 2012 were approximately $1.7 million and $2.5 million, respectively, and $4.0 million and $4.6 million for the six months ended September 30, 2013 and 2012, respectively. | |||||||||||||||||
The Company is not aware of any material claims, disputes, or unsettled matters with any payers that would affect revenues that have not been adequately provided for in the accompanying unaudited condensed consolidated financial statements. | |||||||||||||||||
PROVISION FOR BAD DEBTS | ' | ||||||||||||||||
The Company provides for accounts receivable that could become uncollectible by establishing an allowance to reduce the carrying value of such receivables to their estimated net realizable value. The Hospitals estimate this allowance based on the aging of their accounts receivable, historical collections experience for each type of payer and other relevant factors. There are various factors that can impact the collection trends, such as changes in the economy, which in turn have an impact on unemployment rates and the number of uninsured and underinsured patients, volume of patients through the emergency department, the increased burden of copayments to be made by patients with insurance and business practices related to collection efforts. These factors continuously change and can have an impact on collection trends and the estimation process. | |||||||||||||||||
The Company's policy is to attempt to collect amounts due from patients, including copayments and deductibles due from patients with insurance, at the time of service while complying with all federal and state laws and regulations, including, but not limited to, the Emergency Medical Treatment and Labor Act ("EMTALA"). Generally, as required by EMTALA, patients may not be denied emergency treatment due to the inability to pay. Therefore, until the legally required medical screening examination is complete and stabilization of the patient has begun, services are performed prior to the verification of the patient's insurance, if any. In nonemergency circumstances or for elective procedures and services, it is the Hospitals' policy, when appropriate, to verify insurance prior to a patient being treated. | |||||||||||||||||
CASH AND CASH EQUIVALENTS | ' | ||||||||||||||||
The Company considers all highly liquid debt investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances. | |||||||||||||||||
LETTER OF CREDIT | ' | ||||||||||||||||
At September 30 and March 31, 2013, the Company had an outstanding letter of credit totaling $761. This letter of credit correspondingly reduces the Company’s borrowing availability under its revolving line of credit (Note 3). | |||||||||||||||||
RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS | ' | ||||||||||||||||
The following is a summary of the principal components of accounts receivable and due from/to government payers as of September 30 and March 31, 2013: | |||||||||||||||||
September 30, | March 31, | ||||||||||||||||
2013 | 2013 | ||||||||||||||||
Accounts receivable: | |||||||||||||||||
Patient accounts receivable | $ | 93,644 | $ | 83,964 | |||||||||||||
Allowance for doubtful accounts | (33,567 | ) | (21,143 | ) | |||||||||||||
Accounts receivable, net | $ | 60,077 | $ | 62,821 | |||||||||||||
Due from government payers: | |||||||||||||||||
DSH | $ | 7,775 | $ | 5,882 | |||||||||||||
$ | 7,775 | $ | 5,882 | ||||||||||||||
Due to government payers: | |||||||||||||||||
Settlement payables | $ | 170 | $ | 179 | |||||||||||||
$ | 170 | $ | 179 | ||||||||||||||
The Company’s self-pay collection rate, which is the blended collection rate for uninsured and balance after insurance accounts receivable, was approximately 6.1% and 6.5% as of September 30 and March 31, 2013, respectively. These self-pay collection rates include payments made by patients, including co-payments and deductibles paid by patients with insurance. As of September 30 and March 31, 2013, the allowance for doubtful accounts for self-pay uninsured was 95.2% and 95.2%, respectively, of self-pay uninsured patient accounts receivable. As of September 30 and March 31, 2013, the allowance for doubtful accounts for self-pay balance after insurance was 76.1% and 78.0%, respectively, of self-pay balance after insurance patient accounts receivable, consisting primarily of co-pays and deductibles owed by patients with insurance. As of September 30 and March 31, 2013, the allowance for doubtful accounts for managed care was 16.8% and 20.3%, respectively, of managed care patient accounts receivable. | |||||||||||||||||
Receivables from patients who are potentially eligible for Medicaid are classified as Medicaid pending under the MEP, with appropriate contractual allowances recorded. If the patient does not qualify for Medicaid, the receivables are reclassified to charity care and written off, or they are reclassified to self-pay and adjusted to their net realizable value through the provision for bad debts. Reclassifications of pending Medicaid accounts to self-pay do not typically have a material impact on the results of operations as the estimated Medicaid contractual allowances initially recorded are not materially different than the estimated provision for bad debts recorded when the accounts are reclassified. All accounts classified as pending Medicaid, as well as certain other governmental receivables, over the age of 90 days were reserved in contractual allowances as of September 30 and March 31, 2013 based on historical collections experience. | |||||||||||||||||
INVENTORIES OF SUPPLIES | ' | ||||||||||||||||
Inventories of supplies are valued at the lower of weighted average cost or market. | |||||||||||||||||
PROPERTY AND EQUIPMENT | ' | ||||||||||||||||
Property and equipment are stated at cost, less accumulated depreciation and any impairment write-downs related to assets held and used. Additions and improvements to property and equipment are capitalized at cost. Expenditures for maintenance and repairs are charged to expense as incurred. Capital leases are recorded at the beginning of the lease term as property and equipment and a corresponding lease liability is recognized. The value of the property and equipment under capital lease is recorded at the lower of either the present value of the minimum lease payments or the fair value of the asset. Such assets, including improvements, are amortized over the shorter of the lease term or their estimated useful life, where applicable. | |||||||||||||||||
The Company uses the straight-line method of depreciation for buildings and improvements, and equipment over their estimated useful lives of 25 years, and 3 to 15 years, respectively. | |||||||||||||||||
LONG-LIVED ASSETS | ' | ||||||||||||||||
The Company evaluates its long-lived assets for possible impairment whenever circumstances indicate that the carrying amount of the asset, or related group of assets, may not be recoverable from estimated future cash flows. Fair value estimates are derived from established market values of comparable assets or internal calculations of estimated undiscounted future net cash flows. The estimates of future net cash flows are based on assumptions and projections believed by the Company to be reasonable and supportable. These assumptions take into account patient volumes, changes in payer mix, revenue, and expense growth rates and changes in legislation and other payer payment patterns. | |||||||||||||||||
FAIR VALUE MEASUREMENTS | ' | ||||||||||||||||
The Company's financial assets and liabilities recorded in the unaudited condensed consolidated balance sheets include cash and cash equivalents, restricted cash, receivables, debt, accounts payable, and other liabilities, all of which are recorded at book value which approximates fair value. | |||||||||||||||||
GAAP has established a hierarchy for ranking the quality and reliability of the information used to determine fair values and requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories: | |||||||||||||||||
Level 1: | Unadjusted quoted market prices in active markets for identical assets or liabilities. | ||||||||||||||||
Level 2: | Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. | ||||||||||||||||
Level 3: | Unobservable inputs for the asset or liability. | ||||||||||||||||
The Company utilizes the best available information in measuring fair value. Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company currently has no financial or nonfinancial assets or liabilities subject to fair value measurement on a recurring basis except for warrants issued in April 2010 and February 2013 (Note 4). | |||||||||||||||||
The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis and where they are classified within the hierarchy as of September 30 and March 31, 2013: | |||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||||||
Warrant liability at September 30, 2013 | $ | 19,297 | – | – | $ | 19,297 | |||||||||||
Warrant liability at March 31, 2013 | $ | 5,276 | – | – | $ | 5,276 | |||||||||||
Warrant liability - fair value measurements using significant unobservable inputs (Level 3) | |||||||||||||||||
Balance at March 31, 2013 | $ | 5,276 | |||||||||||||||
Change in fair value of warrant liability included in earnings | 6,645 | ||||||||||||||||
Balance at June 30, 2013 | 11,921 | ||||||||||||||||
Change in fair value of warrant liability included in earnings | 7,376 | ||||||||||||||||
Balance at September 30, 2013 | $ | 19,297 | |||||||||||||||
Additional quantitative information about Level 3 fair value measurements is discussed in Note 4. | |||||||||||||||||
WARRANTS | ' | ||||||||||||||||
The Company has entered into complex transactions that contain warrants (Notes 3 and 4). If an instrument (or an embedded feature) that has the characteristics of a derivative instrument is indexed to an entity’s own stock, it is still necessary to evaluate whether it is classified in stockholders’ equity (or would be classified in stockholders’ equity if it were a freestanding instrument). The Company has concluded that the warrants should be classified as liabilities as the exercise price is subject to a weighted average ratchet down provision if the Company subsequently sells shares at a price lower than the then exercise price. | |||||||||||||||||
INCOME (LOSS) PER COMMON SHARE | ' | ||||||||||||||||
Income (loss) per share is calculated under two different methods, basic and diluted. Basic income (loss) per share is calculated by dividing the net income (loss) by the weighted average shares of common stock outstanding during the period. Diluted income (loss) per share is calculated by dividing the net income (loss) by the weighted average shares of common stock outstanding during the period and dilutive potential shares of common stock. Dilutive potential shares of common stock, as determined under the treasury stock method, consist of shares of common stock issuable upon exercise of stock warrants or options, net of shares of common stock assumed to be repurchased by the Company from the exercise proceeds (Note 8). | |||||||||||||||||
INCOME TAXES | ' | ||||||||||||||||
Deferred income tax assets and liabilities are determined based on the differences between the book and tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws using the asset and liability method. The Company assesses the realization of deferred tax assets to determine whether an income tax valuation allowance is required. The Company has recorded a 100% valuation allowance on its net deferred tax assets since they did not meet the more-likely-than-not threshold. | |||||||||||||||||
There is a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. | |||||||||||||||||
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and California. Certain tax attributes carried over from prior years continue to be subject to adjustment by taxing authorities. Any penalties or interest arising from federal or state taxes are recorded as a component of the Company’s income tax provision. | |||||||||||||||||
SEGMENT REPORTING | ' | ||||||||||||||||
The Company operates in one line of business, the provision of healthcare services through the operation of general hospitals and related healthcare facilities. The Company's Hospitals generate substantially all of its net patient service revenues. | |||||||||||||||||
The Company's four Hospitals and related healthcare facilities operate in one geographic region in Orange County, California. There are similarities in the region's economic characteristics and the nature of the Hospitals' operations, the regulatory environment in which they operate and the manner in which they are managed. This region is an operating segment, as defined by GAAP. In addition, the Company's Hospitals and related healthcare facilities share certain resources and benefit from many common clinical and management practices. Accordingly, the Company aggregates the facilities into a single reportable operating segment. |
1_DESCRIPTION_OF_BUSINESS_AND_2
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 6 Months Ended | ||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ' | ||||||||||||||||
PATIENT SERVICE REVENUES | ' | ||||||||||||||||
The following is a summary of sources of patient service revenues (net of contractual allowances and discounts) before provision for doubtful accounts: | |||||||||||||||||
Three months ended September 30, | Six months ended September 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Medicare and Medicare managed care | $ | 24,196 | $ | 22,728 | $ | 47,582 | $ | 48,592 | |||||||||
Medicaid and Medicaid managed care | 35,610 | 61,732 | 196,789 | 82,997 | |||||||||||||
Managed care | 26,827 | 33,016 | 56,203 | 61,134 | |||||||||||||
Indemnity, self-pay and other | 10,439 | 21,015 | 34,018 | 36,515 | |||||||||||||
$ | 97,072 | $ | 138,491 | $ | 334,592 | $ | 229,238 | ||||||||||
The following is a summary of Medicaid and Medicaid managed care patient service revenues excluding QAF and Medicaid Disproportionate Share Hospital (“DSH”) payments: | |||||||||||||||||
Three months ended September 30, | Six months ended September 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Medicaid and Medicaid managed care | $ | 35,610 | $ | 61,732 | $ | 196,789 | $ | 82,997 | |||||||||
QAF | (7,783 | ) | (38,743 | ) | (150,001 | ) | (38,743 | ) | |||||||||
DSH | (4,196 | ) | (5,095 | ) | (7,493 | ) | (6,873 | ) | |||||||||
$ | 23,631 | $ | 17,894 | $ | 39,295 | $ | 37,381 | ||||||||||
RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS | ' | ||||||||||||||||
The following is a summary of the principal components of accounts receivable and due from/to government payers as of September 30 and March 31, 2013: | |||||||||||||||||
September 30, | March 31, | ||||||||||||||||
2013 | 2013 | ||||||||||||||||
Accounts receivable: | |||||||||||||||||
Patient accounts receivable | $ | 93,644 | $ | 83,964 | |||||||||||||
Allowance for doubtful accounts | (33,567 | ) | (21,143 | ) | |||||||||||||
Accounts receivable, net | $ | 60,077 | $ | 62,821 | |||||||||||||
Due from government payers: | |||||||||||||||||
DSH | $ | 7,775 | $ | 5,882 | |||||||||||||
$ | 7,775 | $ | 5,882 | ||||||||||||||
Due to government payers: | |||||||||||||||||
Settlement payables | $ | 170 | $ | 179 | |||||||||||||
$ | 170 | $ | 179 | ||||||||||||||
FAIR VALUE MEASUREMENTS: | ' | ||||||||||||||||
Warrant liability | ' | ||||||||||||||||
The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis and where they are classified within the hierarchy as of September 30 and March 31, 2013: | |||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||||||
Warrant liability at September 30, 2013 | $ | 19,297 | – | – | $ | 19,297 | |||||||||||
Warrant liability at March 31, 2013 | $ | 5,276 | – | – | $ | 5,276 | |||||||||||
Warrant liability - fair value measurements using significant unobservable inputs | ' | ||||||||||||||||
Warrant liability - fair value measurements using significant unobservable inputs (Level 3) | |||||||||||||||||
Balance at March 31, 2013 | $ | 5,276 | |||||||||||||||
Change in fair value of warrant liability included in earnings | 6,645 | ||||||||||||||||
Balance at June 30, 2013 | 11,921 | ||||||||||||||||
Change in fair value of warrant liability included in earnings | 7,376 | ||||||||||||||||
Balance at September 30, 2013 | $ | 19,297 |
2_PROPERTY_AND_EQUIPMENT_Table
2. PROPERTY AND EQUIPMENT (Tables) | 6 Months Ended | ||||||||
Sep. 30, 2013 | |||||||||
Property, Plant and Equipment [Abstract] | ' | ||||||||
Property and Equipment | ' | ||||||||
Property and equipment consists of the following: | |||||||||
September 30, | March 31, | ||||||||
2013 | 2013 | ||||||||
Buildings | $ | 36,536 | $ | 36,536 | |||||
Land and improvements | 13,523 | 13,523 | |||||||
Equipment | 30,462 | 28,534 | |||||||
Assets under capital leases | 13,263 | 13,267 | |||||||
93,784 | 91,860 | ||||||||
Less accumulated depreciation | (32,078 | ) | (27,872 | ) | |||||
Property and equipment, net | $ | 61,706 | $ | 63,988 |
3_DEBT_Tables
3. DEBT (Tables) | 6 Months Ended | ||||||||
Sep. 30, 2013 | |||||||||
Debt Disclosure [Abstract] | ' | ||||||||
Outstanding Debt | ' | ||||||||
The Company's outstanding debt consists of the following: | |||||||||
September 30, | March 31, | ||||||||
2013 | 2013 | ||||||||
Current: | |||||||||
Revolving line of credit | $ | 19,124 | $ | 30,000 | |||||
Discount | (394 | ) | (473 | ) | |||||
$ | 18,730 | $ | 29,527 | ||||||
Noncurrent: | |||||||||
Term loan | $ | 47,277 | $ | 47,277 | |||||
Discount | (1,441 | ) | (1,747 | ) | |||||
$ | 45,836 | $ | 45,530 |
4_COMMON_STOCK_WARRANTS_Tables
4. COMMON STOCK WARRANTS (Tables) | 6 Months Ended | ||||||||||||
Sep. 30, 2013 | |||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' | ||||||||||||
Common Stock Warrants | ' | ||||||||||||
A summary of the warrants outstanding at September 30 and March 31, 2013 is presented as follows. | |||||||||||||
Shares issuable | Weighted- | Expiration | |||||||||||
under warrants | average | date | |||||||||||
exercise price | |||||||||||||
Outstanding, September 30 and March 31, 2013 | 405,000 | $ | 0.07 | 13-Apr-16 | |||||||||
Assumptions used in the Black-Scholes valuation model | ' | ||||||||||||
The assumptions used in the Black-Scholes valuation model are as follows: | |||||||||||||
30-Sep-13 | 31-Mar-13 | ||||||||||||
Expected dividend yield | 0.00% | 0.00% | |||||||||||
Risk-free interest rate | 0.50% | 0.40% | |||||||||||
Expected volatility | 37.90% | 39.90% | |||||||||||
Expected term (in years) | 2.54 | 3.05 |
6_STOCK_INCENTIVE_PLAN_Tables
6. STOCK INCENTIVE PLAN (Tables) | 6 Months Ended | ||||||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ' | ||||||||||||||||||||
STOCK INCENTIVE PLAN | ' | ||||||||||||||||||||
A summary of stock option activity for the six months ended September 30, 2013 is presented as follows. | |||||||||||||||||||||
Shares | Weighted- | Weighted- | Weighted- | Aggregate | |||||||||||||||||
average | average | average | intrinsic | ||||||||||||||||||
exercise | grant date | remaining | value | ||||||||||||||||||
price | fair value | contractual | |||||||||||||||||||
term | |||||||||||||||||||||
(years) | |||||||||||||||||||||
Outstanding, March 31, 2013 | 7,595 | $ | 0.18 | ||||||||||||||||||
Granted | – | $ | – | $ | – | ||||||||||||||||
Exercised | – | $ | – | ||||||||||||||||||
Forfeited or expired | (70 | ) | $ | 0.26 | |||||||||||||||||
Outstanding, September 30, 2013 | 7,525 | $ | 0.18 | 1.2 | $ | 75 | |||||||||||||||
Exercisable at September 30, 2013 | 7,525 | $ | 0.18 | 1.2 | $ | 75 |
8_INCOME_LOSS_PER_SHARE_Tables
8. INCOME (LOSS) PER SHARE (Tables) | 6 Months Ended | ||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||
Income Tax Disclosure [Abstract] | ' | ||||||||||||||||
Schedule of Earnings Per Share | ' | ||||||||||||||||
Income (loss) per share for the three and six months ended September 30, 2013 and 2012 was computed as shown below. | |||||||||||||||||
Three months ended September 30, | Six months ended September | ||||||||||||||||
30, | |||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Numerator: | |||||||||||||||||
Net income (loss) attributable to Integrated Healthcare Holdings, Inc. | $ | (20,383 | ) | $ | 2,582 | $ | 25,022 | $ | (892 | ) | |||||||
Denominator: | |||||||||||||||||
Weighted average common shares | 255,307 | 255,307 | 255,307 | 255,307 | |||||||||||||
Dilutive options | – | 1,680 | 217,571 | – | |||||||||||||
Denominator for diluted calculation | 255,307 | 256,987 | 472,878 | 255,307 | |||||||||||||
Income (loss) per share - basic | $ | (0.08 | ) | $ | 0.01 | $ | 0.1 | $ | (0.00 | ) | |||||||
Income (loss) per share - diluted | $ | (0.08 | ) | $ | 0.01 | $ | 0.05 | $ | (0.00 | ) |
9_VARIABLE_INTEREST_ENTITY_Tab
9. VARIABLE INTEREST ENTITY (Tables) | 6 Months Ended | ||||||||
Sep. 30, 2013 | |||||||||
Variable Interest Entity | ' | ||||||||
Variable Interest Entity | ' | ||||||||
PCHI's assets, liabilities, and deficiency are set forth below. | |||||||||
September 30, | March 31, | ||||||||
2013 | 2013 | ||||||||
Cash | $ | 184 | $ | 147 | |||||
Property, net | 39,052 | 39,696 | |||||||
Other | 118 | 49 | |||||||
Total assets | $ | 39,354 | $ | 39,892 | |||||
Debt ($47,277, net of discount) (as guarantor) | $ | 45,836 | $ | 45,530 | |||||
Other | 468 | 488 | |||||||
Total liabilities | 46,304 | 46,018 | |||||||
Deficiency | (6,950 | ) | (6,126 | ) | |||||
Total liabilities and accumulated deficit | $ | 39,354 | $ | 39,892 |
13_COMMITMENTS_AND_CONTINGENCI1
13. COMMITMENTS AND CONTINGENCIES (Tables) | 6 Months Ended | ||||||||
Sep. 30, 2013 | |||||||||
Commitments And Contingencies Tables | ' | ||||||||
Financed insurance policies | ' | ||||||||
As of September 30 and March 31, 2013, the accompanying unaudited condensed consolidated balance sheets include the following balances relating to the financed insurance policies. | |||||||||
September 30, | March 31, | ||||||||
2013 | 2013 | ||||||||
Prepaid insurance | $ | 1,359 | $ | 115 | |||||
Accrued insurance premiums | $ | – | $ | 69 | |||||
(Included in other current liabilities) |
1_Summary_of_patient_service_r
1. Summary of patient service revenues (Details) (USD $) | 3 Months Ended | 6 Months Ended | ||
In Thousands, unless otherwise specified | Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 |
Health Care Organization, Receivable and Revenue Disclosures [Line Items] | ' | ' | ' | ' |
Sources of patient service revenues | $97,072 | $138,491 | $334,592 | $229,238 |
Medicare | ' | ' | ' | ' |
Health Care Organization, Receivable and Revenue Disclosures [Line Items] | ' | ' | ' | ' |
Sources of patient service revenues | 24,196 | 22,728 | 47,582 | 48,592 |
Medicaid | ' | ' | ' | ' |
Health Care Organization, Receivable and Revenue Disclosures [Line Items] | ' | ' | ' | ' |
Sources of patient service revenues | 35,610 | 61,732 | 196,789 | 82,997 |
Managed Care | ' | ' | ' | ' |
Health Care Organization, Receivable and Revenue Disclosures [Line Items] | ' | ' | ' | ' |
Sources of patient service revenues | 26,827 | 33,016 | 56,203 | 61,134 |
Indemnity Self Pay And Other | ' | ' | ' | ' |
Health Care Organization, Receivable and Revenue Disclosures [Line Items] | ' | ' | ' | ' |
Sources of patient service revenues | $10,439 | $21,015 | $34,018 | $36,515 |
1_Summary_of_accounts_receivab
1. Summary of accounts receivable and due from/to government payers (Details) (USD $) | Sep. 30, 2013 | Mar. 31, 2013 |
In Thousands, unless otherwise specified | ||
Accounts receivable: | ' | ' |
Patient accounts receivable | $93,644 | $83,964 |
Allowance for doubtful accounts | -33,567 | -21,143 |
Accounts receivable, net | 60,077 | 62,821 |
Due from government payers: | ' | ' |
DSH | 7,775 | 5,882 |
Total Amount due from Government | 7,775 | 5,882 |
Due to government payers: | ' | ' |
Settlement payables | 170 | 179 |
Total Amount due to Government | $170 | $179 |
1_Fair_value_of_financial_asse
1. Fair value of financial assets and liabilities (Details) (USD $) | Sep. 30, 2013 | Jun. 30, 2013 | Mar. 31, 2013 |
In Thousands, unless otherwise specified | |||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ' | ' | ' |
Warrant liability | $19,297 | $11,921 | $5,276 |
Fair Value Inputs Level 1 | ' | ' | ' |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ' | ' | ' |
Warrant liability | 0 | ' | 0 |
Fair Value Inputs Level 2 | ' | ' | ' |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ' | ' | ' |
Warrant liability | 0 | ' | 0 |
Fair Value Inputs Level 3 | ' | ' | ' |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ' | ' | ' |
Warrant liability | 19,297 | ' | 5,276 |
Total | ' | ' | ' |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ' | ' | ' |
Warrant liability | $19,297 | ' | ' |
1_Warrant_liability_Details
1. Warrant liability (Details) (USD $) | 3 Months Ended | |
In Thousands, unless otherwise specified | Sep. 30, 2013 | Jun. 30, 2013 |
Warrant liability - fair value measurements using significant unobservable inputs (Level 3) | ' | ' |
Balance, beginning | $11,921 | $5,276 |
Change in fair value of warrant liability included in earnings | 7,376 | 6,645 |
Balance, ending | $19,297 | $11,921 |
1_Patient_Service_Revenues_Det
1. Patient Service Revenues (Details) (USD $) | 3 Months Ended | 6 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Medicaid and Medicaid managed care patient service revenues excluding QAF and Medicaid DSH payments | $23,631 | $17,894 | $39,295 | $37,381 |
Medicaid | ' | ' | ' | ' |
Medicaid and Medicaid managed care patient service revenues excluding QAF and Medicaid DSH payments | 35,610 | 61,732 | 196,789 | 82,997 |
QAF | ' | ' | ' | ' |
Medicaid and Medicaid managed care patient service revenues excluding QAF and Medicaid DSH payments | -7,783 | -38,743 | -150,001 | -38,743 |
DSH | ' | ' | ' | ' |
Medicaid and Medicaid managed care patient service revenues excluding QAF and Medicaid DSH payments | ($4,196) | ($5,095) | ($7,493) | ($6,873) |
1_Description_of_Business_Narr
1. Description of Business (Narrative) (USD $) | 3 Months Ended | 6 Months Ended | 9 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | ||||||||||||||||||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | Mar. 31, 2013 | Sep. 30, 2013 | Sep. 30, 2013 | Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | Mar. 31, 2013 | Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Mar. 31, 2013 | Sep. 30, 2013 | Mar. 31, 2013 | Sep. 30, 2013 | Mar. 31, 2013 | Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | Mar. 31, 2013 | |
Building and Building Improvements | Equipment | DSH and CMAC | DSH and CMAC | DSH and CMAC | DSH and CMAC | DSH and CMAC | Medicare and Medicaid | Medicare and Medicaid | Medicare and Medicaid | Medicare and Medicaid | Self-Pay Uninsured and Insured | Self-Pay Uninsured and Insured | Self-Pay Uninsured | Self-Pay Uninsured | Self-Pay After Insurance | Self-Pay After Insurance | Managed Care | Managed Care | Managed Care | Managed Care | Managed Care | ||||||
Liquidity | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Working capital | $3,800,000 | ' | $3,800,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Credit line facility availability | 15,900,000 | ' | 15,900,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Concentration of Risk | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Percentage of patient service revenue | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 67.00% | 63.00% | 76.00% | 60.00% | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Patient Service Revenues | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Settlement payables | 170,000 | ' | 170,000 | ' | 179,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Proceeds from supplemental payments | ' | ' | ' | ' | ' | ' | ' | 4,000 | -600,000 | 5,600,000 | 4,100,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Revenue received from supplemental payments | 97,072,000 | 138,491,000 | 334,592,000 | 229,238,000 | ' | ' | ' | 4,200,000 | 5,100,000 | 7,500,000 | 6,900,000 | ' | 20,600,000 | 19,700,000 | 40,400,000 | 43,300,000 | ' | ' | ' | ' | ' | ' | 26,827,000 | 33,016,000 | 56,203,000 | 61,134,000 | ' |
Accounts receivable from government payors | 7,775,000 | ' | 7,775,000 | ' | 5,882,000 | ' | ' | 7,800,000 | ' | 7,800,000 | ' | 5,900,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Charity care cost | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | $1,700,000 | $2,500,000 | $4,000,000 | $4,600,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Receivables and Allowance for Doubtful Accounts | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Self pay collection rate | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 6.10% | 6.50% | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Self pay collection rate - allowance for doubtful accounts | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 95.20% | 95.20% | 76.10% | 78.00% | 16.80% | ' | 16.80% | ' | 20.30% |
Property and Equipment | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Estimated useful lives | ' | ' | ' | ' | ' | '25 years | '3-15 years | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
2_Schedule_of_Property_and_Equ
2. Schedule of Property and Equipment (Details) (USD $) | Sep. 30, 2013 | Mar. 31, 2013 |
In Thousands, unless otherwise specified | ||
Property and equipment, gross | $93,784 | $91,860 |
Less accumulated depreciation | -32,078 | -27,872 |
Property and equipment, net | 61,706 | 63,988 |
Buildings | ' | ' |
Property and equipment, gross | 36,536 | 36,536 |
Land and Improvements | ' | ' |
Property and equipment, gross | 13,523 | 13,523 |
Equipment | ' | ' |
Property and equipment, gross | 30,462 | 28,534 |
Assets Held under Capital Leases | ' | ' |
Property and equipment, gross | $13,263 | $13,267 |
2_PROPERTY_AND_EQUIPMENT_Narra
2. PROPERTY AND EQUIPMENT (Narrative) (USD $) | Sep. 30, 2013 | Mar. 31, 2013 |
Property, Plant and Equipment [Abstract] | ' | ' |
Earthquake insurance with a policy limit | $50,000,000 | ' |
Accumulated depreciation on assets under capital lease | $6,900,000 | $6,200,000 |
3_DEBT_Details
3. DEBT (Details) (USD $) | Sep. 30, 2013 | Mar. 31, 2013 |
In Thousands, unless otherwise specified | ||
Current: | ' | ' |
Revolving line of credit | $19,124 | $30,000 |
Discount | -394 | -473 |
Net revolving line of credit | 18,730 | 29,527 |
Noncurrent: | ' | ' |
Term loan | 47,277 | 47,277 |
Discount | -1,441 | -1,747 |
Term loan | $45,836 | $45,530 |
4_Warrants_Outstanding_Details
4. Warrants Outstanding (Details) (Warrants) | 6 Months Ended | |
Sep. 30, 2013 | Mar. 31, 2013 | |
Warrants | ' | ' |
Warrant shares outstanding | 405,000 | 405,000 |
Weighted-average exercise price | 0.07 | ' |
Expiration date | 13-Apr-16 | ' |
4_Warrant_assumptions_Details
4. Warrant assumptions (Details) (Warrants) | 6 Months Ended | 12 Months Ended |
Sep. 30, 2013 | Mar. 31, 2013 | |
Warrants | ' | ' |
Expected dividend yield | 0.00% | 0.00% |
Risk-free interest rate | 0.50% | 0.40% |
Expected volatility | 37.90% | 39.90% |
Expected term (in years) | '2 years 6 months 15 days | '3 years 18 days |
4_Common_Stock_Warrants_Narrat
4. Common Stock Warrants (Narrative) (USD $) | 3 Months Ended | 6 Months Ended | |||
In Thousands, unless otherwise specified | Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | Mar. 31, 2013 |
Fair value of outstanding warrants | $19,297 | ' | $19,297 | ' | $5,276 |
Warrants | ' | ' | ' | ' | ' |
Fair value of outstanding warrants | 19,300 | ' | 19,300 | ' | 5,300 |
Change in fair value of warrants | $7,400 | $1,100 | $14,000 | $395 | ' |
6_Options_Outstanding_Details
6. Options Outstanding (Details) (Options, USD $) | 6 Months Ended |
Sep. 30, 2013 | |
Options | ' |
Outstanding beginning balance | 7,595 |
Granted, Shares | 0 |
Exercised, Shares | 0 |
Forfeited or expired, Shares | -70 |
Outstanding, ending balance | 7,525 |
Exercisable | 7,525 |
Weighted- Average Exercise Price | ' |
Granted, exercise price | ' |
Exercised, exercise price | ' |
Forfeited or expired, exercise price | $0.26 |
Outstanding, ending balance | $0.18 |
Exercisable | $0.18 |
Weighted - average grant date fair value | ' |
Granted | ' |
Weighted- Average remaining contractual term (years) | ' |
Outstanding, beginning balance | '1 year 2 months 12 days |
Exercisable | '1 year 2 months 12 days |
Aggregate intrinsic value | ' |
Outstanding, ending balance | $75 |
Exercisable | $75 |
6_Stock_Incentive_Plan_Narrati
6. Stock Incentive Plan (Narrative) | 6 Months Ended |
Sep. 30, 2013 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' |
Maximum aggregate number of shares under the plan | 26.1 |
Stock Incentive 2006 Plan | ' |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' |
Plan description | ' |
The Company's 2006 Stock Incentive Plan (the "Plan"), which is shareholder-approved, permits the grant of share options to its employees and board members for up to a maximum aggregate of 12.0 million shares of common stock. In addition, as of the first business day of each calendar year in the period 2007 through 2015, the maximum aggregate number of shares shall be increased by a number equal to one percent of the number of shares of common stock of the Company outstanding on December 31 of the immediately preceding calendar year. | |
Vesting rights description | ' |
Option awards generally vest based on 3 years of continuous service (1/3 of the shares vest on the twelve month anniversary of the grant date, and an additional 1/12 of the shares vest on each subsequent fiscal quarter-end of the Company following such twelve month anniversary). Certain option awards provide for accelerated vesting if there is a change of control, as defined. The option awards have 7-year contractual terms. |
8_Income_Loss_Per_Share_Detail
8. Income (Loss) Per Share (Details) (USD $) | 3 Months Ended | 6 Months Ended | ||
In Thousands, except Share data, unless otherwise specified | Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 |
Numerator: | ' | ' | ' | ' |
Net income attributable to Integrated Healthcare Holdings, Inc. | ($20,383) | $2,582 | $25,022 | ($892) |
Denominator: | ' | ' | ' | ' |
Weighted average common shares | 255,307,000 | 255,307,000 | 255,307,000 | 255,307,000 |
Dilutive options | ' | 1,680 | 217,571 | ' |
Denominator for diluted calculation | 255,307,000 | 256,987,000 | 472,878,000 | 255,307,000 |
Income per share - basic | ($0.08) | $0.01 | $0.10 | $0 |
Income per share - diluted | ($0.08) | $0.01 | $0.05 | $0 |
8_Income_Loss_Per_Share_Narrat
8. Income (Loss) Per Share (Narrative) | 3 Months Ended | 6 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Income Tax Disclosure [Abstract] | ' | ' | ' | ' |
Shares excluded from the calculations of diluted loss per share | 413,000,000 | 411,000,000 | 6,000,000 | 413,000,000 |
9_Variable_Interest_Entity_Det
9. Variable Interest Entity (Details) (USD $) | Sep. 30, 2013 | Mar. 31, 2013 |
In Thousands, unless otherwise specified | ||
Property, net | $61,706 | $63,988 |
Total assets | 218,882 | 166,708 |
Total liabilities | 224,650 | 196,594 |
Deficiency | -5,768 | -29,886 |
Total liabilities and accumulated deficit | 218,882 | 166,708 |
PCHI [Member] | ' | ' |
Cash | 184 | 147 |
Property, net | 39,052 | 39,696 |
Other | 118 | 49 |
Total assets | 39,354 | 39,892 |
Debt (as guarantor) | 45,836 | 45,530 |
Other | 468 | 488 |
Total liabilities | 46,304 | 46,018 |
Deficiency | -6,950 | -6,126 |
Total liabilities and accumulated deficit | $39,354 | $39,892 |
9_Variable_Interest_Entity_Nar
9. Variable Interest Entity (Narrative) (USD $) | 3 Months Ended | 6 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Variable Interest Entity | ' | ' | ' | ' |
VIE, arrangements | ' | ' | ' | ' |
Concurrent with the close of the Acquisition, PCHI simultaneously acquired title to substantially all of the real property acquired by the Company in the Acquisition. The Company received $5.0 million and PCHI guaranteed the Company's $47.277 million term loan. The Company remains primarily liable as the borrower under the $47.277 million term loan notwithstanding its guarantee by PCHI. The $47.277 million term loan is cross-collateralized by substantially all of the Company's assets and all of the real property of the Hospitals. All of the Company's operating activities are directly affected by the real property that was sold to PCHI, which is a related party entity that is affiliated with the Company through common ownership and control. | ||||
VIE, ownership | ' | ' | ' | ' |
As of September 30, 2013, PCHI was owned 51% by various physician investors and 49% by Ganesha, which is managed by Dr. Chaudhuri | ||||
VIE, Financial support | ' | ' | $47,277,000 | ' |
Exposure amount, VIE | ' | ' | ' | ' |
As noted above, PCHI is a guarantor on the $47.277 million term loan should the Company not be able to perform. PCHI's total liabilities (before debt discount of $1.4 million) represent the Company's maximum exposure to loss. Additionally, the Company is responsible for seismic remediation under the terms of the lease agreement (Notes 2 and 13). | ||||
Rental expense eliminated upon consolidation | $2,000,000 | $1,900,000 | $4,000,000 | $3,900,000 |
10_Related_Party_Transactions_
10. Related Party Transactions (Narrative) | Sep. 30, 2013 | Mar. 31, 2013 |
Related Party Transactions [Abstract] | ' | ' |
Common Stock Outstanding by beneficial owners | 447,500,000 | 447,500,000 |
13_Financed_Insurance_Policy_S
13. Financed Insurance Policy Schedule (Details) (USD $) | Sep. 30, 2013 | Mar. 31, 2013 |
In Thousands, unless otherwise specified | ||
Commitments and Contingencies Disclosure [Abstract] | ' | ' |
Prepaid insurance | $1,359 | $115 |
Accrued insurance premiums (Included in other current liabilities) | $0 | $69 |