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UNMSANDOVALREGIONALMEDICALCENTER,INC.

(AComponentUnitoftheUniversityofNewMexico)

FINANCIALSTATEMENTS

JUNE30,2013AND2012


(AComponentUnitoftheUniversityofNewMexico)

OfficialRosterJune30,2013

BOARDOFDIRECTORS

PaulRoth,MD Chairperson(Termexpires6/30/14,Regentappointed)Albuquerque,NMCarolynVoss,MD ViceChairperson(Termexpires6/30/13,Regentappointed)Albuquerque,NMManuelCristobol Member(Termexpires6/30/2014,Countyappointed)SantaAnaPueblo,NMBradCushnyr,MD Member(Termexpires6/30/15,Regentappointed)Albuquerque,NMCharlotteGarcia Member(Termexpires6/30/15,Countyappointed)Albuquerque,NMJeffreyGriffith,Ph.D. Member(Termexpires6/30/14,Regentappointed)Albuquerque,NMDebbieJohnson Member(Termexpires6/30/13,Regentappointed)Albuquerque,NMMarthaMcGrew,MD Member(Termexpires6/30/15,Regentappointed)Albuquerque,NMSteveMcKernan Member(Termexpires6/30/13,Regentappointed)Albuquerque,NM


(AComponentUnitoftheUniversityofNewMexico)OfficialRoster(continued)

June30,2013

ADMINISTRATIVEOFFICERS

KevinRogols ChiefExecutiveOfficer–SandovalRegionalMedicalCenterTonyOgborn,MD ChiefMedicalOfficer–SandovalRegionalMedicalCenterEricaHamilton ChiefNursingOfficer–SandovalRegionalMedicalCenterEllaWatt InterimChiefFinancialOfficer

UNMSANDOVALREGIONALMEDICALCENTER,INC.(AComponentUnitoftheUniversityofNewMexico)

TABLEOFCONTENTS PageReportofIndependentAuditors 1‐3Management’sDiscussionandAnalysis 4‐16FinancialStatements:

StatementsofNetPosition 17 StatementsofRevenues,ExpensesandChangesinNetPosition 18

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

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REPORTOFINDEPENDENTAUDITORSTheBoardofDirectorsUNMSandovalRegionalMedicalCenter,Inc. andMr.HectorBalderas,StateAuditorReportontheFinancialStatements

WehaveauditedtheaccompanyingfinancialstatementsoftheSandovalRegionalMedicalCenter,Inc. (SRMC), a component unit of theUniversity ofNewMexico, as of and for the years endedJune30, 2013 and 2012, and the related notes to the financial statements, which collectivelycompriseSRMC’sbasicfinancialstatementsaslistedinthetableofcontents.Management’sResponsibilityfortheFinancialStatements

ManagementisresponsibleforthepreparationandfairpresentationofthesefinancialstatementsinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica;thisincludes the design, implementation, and maintenance of internal control relevant to thepreparation and fair presentation of financial statements that are free from materialmisstatement,whetherduetofraudorerror.Auditor’sResponsibility

Ourresponsibilityistoexpressandopiniononthesefinancialstatementsbasedonouraudits.Weconducted our audits in accordance with auditing standards generally accepted in theUnitedStatesofAmericaandthestandardsapplicabletofinancialauditscontainedinGovernmentAuditing Standards, issued by the Comptroller General of the United States. Those standardsrequire thatwe plan and perform the audit to obtain reasonable assurance aboutwhether thefinancialstatementsarefreefrommaterialmisstatement.An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on the auditor’sjudgment, including the assessment of the risks of material misstatement of the financialstatements, whether due to fraud or error. In making those risk assessments, the auditorconsiders internal control relevant to the entity’s preparation and fair presentation of thefinancial statements in order to design audit procedures that are appropriate in thecircumstances,butnot for thepurposeofexpressinganopinionon theeffectivenessofSRMC’sinternalcontrol.Accordingly,weexpressnosuchopinion.Anauditalso includesevaluating theappropriateness of accounting policies used and the reasonableness of significant accountingestimatesmade bymanagement, aswell as evaluating the overall presentation of the financialstatements.

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TheBoardofDirectorsUNMSandovalRegionalMedicalCenter,Inc. andMr.HectorBalderas,StateAuditorWebelieve that theaudit evidencewehaveobtained is sufficient andappropriate toprovideabasisforourauditopinion.Opinion

Inouropinion,thefinancialstatementsreferredtoabovepresentfairly, inallmaterialrespects,the financial position of SRMC as of June 30, 2013 and 2012, and the changes in its financialposition and cash flows for the years then ended in accordance with accounting principlesgenerallyacceptedintheUnitedStatesofAmerica.EmphasisofMatter

AsdiscussedinNote13tothefinancialstatements,theMedicalCenteradoptedGASBStatementNo.65, ItemsPreviouslyReportedasAssetsandLiabilitieseffective July1,2012.Uponadoption,accounting changes required by the Statement are required to be applied retroactively byrestatingthe financialstatements forallperiodspresented.Accordingly, theMedicalCenterhasretroactively restated the 2012 financial statements to expense previously capitalized andamortizedbondissuancecostsintheperiodincurred.OtherMatters

RequiredSupplementaryInformation

Accounting principles generally accepted in the United States of America require that themanagement’s discussion and analysis on pages 4 through 16 be presented to supplement thebasicfinancialstatements.Suchinformation,althoughnotapartofthebasicfinancialstatements,isrequiredbytheGovernmentalAccountingStandardsBoardwhoconsidersittobeanessentialpartoffinancialreportingforplacingthebasicfinancialstatementsinanappropriateoperational,economic, or historical context. We have applied certain limited procedures to the requiredsupplementary information in accordance with auditing standards generally accepted in theUnited States of America, which consisted of inquiries of management about the methods ofpreparing the information and comparing the information for consistency with management'sresponses to our inquiries, the basic financial statements, and other knowledge we obtainedduringourauditofthebasicfinancialstatements.Wedonotexpressanopinionorprovideanyassuranceon the informationbecause the limitedproceduresdonotprovideuswith sufficientevidencetoexpressanopinionorprovideanyassurance.

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TheBoardofDirectorsUNMSandovalRegionalMedicalCenter,Inc. andMr.HectorBalderas,StateAuditorOtherReportingRequiredbyGovernmentAuditingStandards

In accordance with Government Auditing Standards, we have also issued our report datedOctober18,2013onourconsiderationofSRMC'sinternalcontroloverfinancialreportingandonour tests of its compliance with certain provisions of laws, regulations, contracts, and grantagreementsandothermatters.Thepurposeofthatreportistodescribethescopeofourtestingofinternalcontroloverfinancialreportingandcomplianceandtheresultsofthattesting,andnottoprovideanopiniononinternalcontroloverfinancialreportingoroncompliance.Thatreportisanintegral part of an audit performed in accordance with Government Auditing Standards inconsideringSRMC'sinternalcontroloverfinancialreportingandcompliance.

Albuquerque,NewMexicoOctober18,2013

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)MANAGEMENT’SDISCUSSIONANDANALYSISJUNE30,2013AND2012The followingdiscussionandanalysisprovidesanoverviewof the financialpositionandactivitiesofUNMSandovalRegionalMedicalCenter(MedicalCenter)asofandforthefiscalyearsendedJune30,2013,2012and2011.Thisdiscussionshouldbereadinconjunctionwith the accompanying financial statements and notes. Management has prepared thebasicfinancialstatementsandtherelatednotedisclosuresalongwiththisdiscussionandanalysis.Assuch,thefinancialstatements,notes,andthisdiscussionaretheresponsibilityoftheMedicalCenter’smanagement.UsingThisAnnualReportThis annual report consists of financial statements prepared in accordance withGovernmental Accounting Standards Board (GASB) Statement No.34, Basic FinancialStatements–andManagement’sDiscussionandAnalysis–forStateandLocalGovernments,asamended.The financial statements prescribed by GASB 34, as amended, (thestatement of netposition,statementofrevenues,expenses,andchangesinnetposition,andthestatementofcashflows)present financial information ina formsimilarto thatusedbycommercialcorporations.Theyarepreparedundertheaccrualbasisofaccounting,wherebyrevenuesand assets are recognizedwhen the service is provided, and expenses and liabilities arerecognizedwhenothersprovidetheservice,regardlessofwhencashisexchanged.The statements of net position include all assets and liabilities. Over time, increases ordecreasesinnetposition(thedifferencebetweenassetsandliabilities)isoneindicatoroftheimprovementorerosionoftheMedicalCenter’sfinancialhealthwhenconsideredwithnonfinancial facts suchaspatient statisticsand the conditionof facilities.This statementincludesallassetsandliabilitiesusingtheaccrualbasisofaccounting,whichisconsistentwiththeaccountingmethodusedbyprivatesectorinstitutions.The statements of revenues, expenses, and changes innetpositionpresent the revenuesearnedandexpensesincurredduringtheyear.Activitiesarereportedaseitheroperatingornonoperating.Theutilizationofcapitalassetsisreflectedinthefinancialstatementsasdepreciation,whichamortizesthecostofanassetoveritsexpectedusefullife.The statement of cash flows presents information related to cash inflows and outflowssummarizedbyoperating,capitalandnoncapitalfinancing,andinvestingactivities.

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)MANAGEMENT’SDISCUSSIONANDANALYSIS(CONTINUED)JUNE30,2013AND2012OverviewofEntityInAugust2009,RegentsoftheUniversityofNewMexico(UNM)approvedtheformationoftheMedicalCenter,aNewMexicononprofitcorporationorganizationunderandpursuanttotheNewMexicoUniversityResearchParkandEconomicDevelopmentAct.TheMedicalCenter was organized for the development, construction and operation of a licensedgeneral, community teaching Medical Center in Sandoval County and to facilitate anddevelop the clinical andmedicalpracticesof the facultyof theUniversityofNewMexicoSchoolofMedicine(UNMSOM).AsofJuly2012,theconstructionofthephysicalfacilityoftheMedicalCenterwascomplete,with the Medical Center receiving a Medical Center license from the New MexicoDepartmentofHealthonJuly12,2012. OnAugust17,2012,theMedicalCenterreceivednotice from the Centers forMedicare andMedicaid Services that the facility hadmet allfederal requirements for participation in theMedicare andMedicaid programs. At thattime,theMedicalCenterwasassignedaprovidernumberbyCMSDallasRegionalOfficetobeginbillingtheMedicareprogramforMedicarebeneficiaries.ThefollowingsummarizesthehealthcareservicesthatareofferedbytheMedicalCenter:

InpatientCare‐Acutecareprovidedbypractitionersin48acutemedical‐surgicalbeds,12 intensive care unit beds and 12 dedicated behavioral health beds. The MedicalCenter is equippedwith anemergencydepartmentwith11examrooms, two traumarooms and two triage rooms. Additionally, the Medical Center is equipped with sixoperatingroomsandthreeminorprocedurerooms.

Outpatient Care ‐ Comprehensive offering of laboratory, radiology, and diagnosticservices.

SurgicalServices‐Anesthesia,GeneralSurgery,Orthopedic(includinghand),Podiatry,Otolaryngology, Urologic, Gynecologic, Urogynecologic, and outpatient laparoscopicsurgery.

Physician Services ‐ the Medical Center will have an "open" medical staff, allowingcommunity physicians in addition to the UNM SOM providers to bemembers of theactivemedicalstaffandtoadmitandfollowtheirpatientsattheMedicalCenter.Thereare currently 371 physicians credentialed of which 278 are School of Medicinephysiciansandtheremaining93arecommunityphysicians.

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)MANAGEMENT’SDISCUSSIONANDANALYSIS(CONTINUED)JUNE30,2013AND2012

CondensedSummaryofNetPosition

Assets 2013 2012 2011Currentassets $ 36,983,806 71,942,268 30,748,768Capitalassets,net 136,485,863 129,759,992 39,899,863Noncurrentassets 1,677,025 ‐ 165,051,022

Totalassets $ 175,146,694 201,702,260 235,699,653Liabilities

Currentliabilities $ 15,362,628 24,760,374 10,048,678Noncurrentliabilities 140,765,000 143,925,000 148,065,000

Totalliabilities $ 156,127,628 168,685,374 158,113,678NetPosition

Netinvestmentincapitalassets $ ‐ 2,344,125 17,598,996Restrictednetposition,expendable 10,094,941 37,124,103 9,558,489Unrestricted 8,924,125 (6,451,342) 19,679,722

Totalnetposition $ 19,019,066 33,016,886 46,837,207

AsofJune30,

At June30, 2013 total Medical Center assets were $175.1million compared to$201.7million at June30, 2012. TheMedical Center’smost significant assets at June30,2013werenetcapitalassetsof$136.5million,cashandcashequivalentsof$19.3millionfollowedbypatientreceivablesof$6.0million.At June30,2012 totalMedicalCenter assetswere$201.7million compared to$205.0atJune 30, 2011. The Medical Center’s most significant assets were net capital assets of$129.8million, followed by cash and cash equivalents of $70.4million followed by duefromUNMMGof$1.1million.At June30, 2013, 2012 and 2011, the Medical Center’s current assets of $37.0 million,$71.9millionand$30.7million,respectively,weresufficienttocovercurrent liabilitiesof$15.4million(currentratioof2.41),$24.8million(currentratioof2.91)and$10.0million(currentratioof3.06),respectively.The Medical Center’s liabilities totaled $156.1 million at June30, 2013 compared to$168.7millionatJune30,2012.AtJune30,2013,bondspayableof$143.4millionwasthelargestliability,followedbyaccountspayableof$4.6million.At June 30, 2012, the Medical Center’s liabilities totaled $168.7 million compared to$158.1millionatJune30,2011.AtJune30,2012,bondspayableof$143.4millionwasthelargestliability,followedbyaccountspayableof$17.0million.

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)MANAGEMENT’SDISCUSSIONANDANALYSIS(CONTINUED)JUNE30,2013AND2012Total net positionas of June30, 2013decreasedby $14.0million to $19.0million,whichincludedanoperatinglossof$30.0millionpartiallyoffsetbynetnon‐operatingrevenuesof$16.0million.Unrestrictednetpositiontotaled$8.9millionatJune30,2013.Total net positionas of June30, 2012decreasedby $13.8million to $33.0million,whichincluded anoperating loss of $6.3million andnetnon‐operating expenseof $3.9million.Unrestrictednetpositiontotaledadeficiencyof$6.5millionatJune30,2012.

2013 2012 2011Totaloperatingrevenues $ 19,198,419 ‐ ‐Totaloperatingexpenses (49,206,822) (6,347,010) (1,499,153)

Operatingloss (30,008,403) (6,347,010) (1,499,153)Nonoperatingrevenues,expense

andotherrevenues 16,010,583 (3,853,679) 48,727,634Total(decrease)increaseinnetposition (13,997,820) (10,200,689) 47,228,481

Netposition,beginningofyear(July1,2011asrestated) 33,016,886 43,217,575 (391,274)Netposition,endofyear $ 19,019,066 33,016,886 46,837,207

CondensedSummaryofRevenues,Expenses,andChangesinNetPositionYearEndedJune30,

OperatingRevenuesAspreviouslydescribed,theMedicalCenteropenedinJuly2012andreceivedlicensureinAugust2012.Accordingly,therewerenopatientservicerevenuespriortofiscalyear2013.ThesourcesofoperatingrevenuesfortheMedicalCenterarenetpatientservicesandotheroperatingrevenues,with themostsignificantsourcebeingnetpatientservicesrevenues.Operatingrevenueswere$19.2millionfortheyearended2013. Net patient service revenue is comprised of gross patient revenue, net of contractualallowances, charitycare,provision fordoubtfulaccounts,andany thirdpartycost reportsettlements.Netpatientservicesrevenueswere$18.9millionfortheyearended2013andincludeanestimateforthesettlementofthecapitalcomponentofMedicareintheamountof$1,574,229.

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)MANAGEMENT’SDISCUSSIONANDANALYSIS(CONTINUED)JUNE30,2013AND2012TheMedicalCenterseespatients thatareenrolled in theNewMexicoSCIMedicaidplan.TheMedicalCenterparticipatesinthereimbursementagreementbetweenUNMHospitalsand the State of New Mexico. Funding is modeled after a capitated payment program.Funds are remitted to UNM Hospitals on a per‐member‐per‐month basis for all state‐approvedmembers.UNMHospitals remits funds to theMedicalCenterbasedon theproratashareoftheadjudicatedclaimsforthesepatients.FundingundertheSCIprogramforfiscal year ended June30, 2013 was $644,231, and is included in net patient servicerevenue.

YearEndedJune30,2013

InpatientDays 6,763Discharges 1,691OutpatientVisits 17,300EmergencyVists 9,238Surgries 1,731 The averagedaily census has grown from ten in themonth ofAugust 2012 to 30 in themonthofJune2013.

TheMedicalCenteroffersafinancialassistanceprogramtowhichalleligiblepatientsareencouraged to apply. This program assigns patients primary care providers and enablesthemtoreceivecarethroughouttheMedicalCenterandatallcliniclocations.Thisprogramis available to Sandoval County residentswho alsomeet certain income thresholds. Theincome threshold is 150% of the Federal Poverty Level (FPL) for 100% discount onservicesexcludingcopayments,andupto250%oftheFPLfora70%discountonservices.TheMedicalCenterdoesnotpursuecollectionofamountsdetermined toqualifyascharitycare, with the exception of copayments. The cost of charity care provided under thisprogramforfiscalyearendedJune30,2013approximated$875,000.TheMedicalCenterprovidescare topatientswhoareeitheruninsuredorunder‐insuredandwhodonotmeet thecriteria for financialassistance.TheMedicalCenterencouragespatientstomeetwithafinancialcounselortodeveloppaymentarrangements.AlthoughtheMedicalCenterpursuescollectionoftheseaccountsusuallythroughanextendedpaymentplanoradiscountedrate,interestisnotchargedontheseaccounts,liensarenotplacedonproperty or assets, and judgments are not filed against the patients. These accounts arefullyreservedandrecordedasprovisionforuncollectibleaccounts.

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)MANAGEMENT’SDISCUSSIONANDANALYSIS(CONTINUED)JUNE30,2013AND2012OperatingExpensesOperatingexpensesfortheMedicalCenterincludeitemssuchasemployeecompensationand benefits, medical services, medical supplies, and equipment. The most significantexpenditureswereforemployeecompensationandbenefits.FortheyearendedJune30,2013,totaloperatingexpensesincreased$42.9millionto$49.2million. The overall increase was attributed to the opening of the Medical Center.Significantexpenses included$23.4million inemployeecompensationincludingbenefits,$8.0 million in depreciation expense, $7.0 million in medical supplies, $3.9 million ofpurchasedservices,and$3.5millionofmedicalservices.For the year ended June 30, 2012, operating expenses increased $4.8 million to$6.3million. The most significant expenses included $4.0 million in employeecompensationincludingbenefits,followedby$1.4millioninpurchasedservices.NonoperatingRevenuesandExpensesFortheyearsendedJune30,2013,2012and2011,netnonoperatingrevenues(expense)was $16.0 million, ($3.9 million), and $48.7 million, respectively, in the accompanyingstatementsofrevenues,expenses,andchangesinnetposition.At June30,2013, theSandovalCountymill levy taxsubsidywasthemostsignificantnonoperating revenue, totaling $20.8M in2013.This tax subsidy is provided for the generaloperations of theMedical Center. TheMedical Center received this tax subsidy by voterendorsement for the services theMedical Center provides. Pursuant to a Health FacilityAgreementwiththeBoardofCountyCommissionersofSandovalCounty,NewMexico,afteropening, theMedicalCenterwasentitled toreceive theproceedsofamill levy (the"MillLevy")adoptedbytheBoardofCountyCommissionersofSandovalCountyandapprovedbythevotersofSandovalCounty.TheMedicalCenterrecognizesMillLevyFundsbasedonthe fiscalyear that the levy iscollectedby theCounty,andrecords the fundsreceivedasNon‐operatingrevenues;however,duringfiscalyear2013,theMedicalCenterrecognizedasrevenuetheSandovalCountyproceedsoftheMillLevyaccumulatedpriortoopeninginthe amount of $13.8 million. The Medical Center will receive, on an ongoing basis, anamount equal to 20%of the total proceeds of theMill Levy for the inpatient behavioralhealth services it provides, and then will split 50% of the remaining proceeds of theMillLevy with Presbyterian Hospital. The amount of the mill levy funds recognizedassociatedwithfiscalyear2013is$7.0million.

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)MANAGEMENT’SDISCUSSIONANDANALYSIS(CONTINUED)JUNE30,2013AND2012Thenextlargestsourceofnonoperatingrevenuein2013,2012and2011wastheFederalBondSubsidyintheamountof$2.2million,$2.3millionand$1.7million,respectively.TheMedicalCenterreceivessubsidypaymentsrelatedtointerestpaymentsunderthefederalBuild America Bond and Taxable Revenue Recovery Zone Economic Development Bondprograms.TheMedicalCenteriseligibletoreceivecashsubsidypaymentsfromtheUnitedStatesDepartmentofTreasuryequalto35%oftheinterestpayableontheBuildAmericaBonds (Series 2010A), and 45%of the interest payable on theRecovery ZoneEconomicDevelopment Bonds (Series 2010B). Pursuant to the Budget Control Act of 2011, aspostponedbytheAmericanTaxpayerReliefActof2012,thebudgetsequestrationimpactwas a reduction of 8.7%, effective March 1, 2013. This had the effect of changing thesubsidypayment from theUnitedStatesDepartmentofTreasuryequal to31.96%of theinterestpayableon theBuildAmericaBonds (Series2010A), and41.09%of the interestpayableontheRecoveryZoneEconomicDevelopmentBonds(Series2010B).The largest non operating expense recorded in 2013 and 2012 was $6.5 million and$6.2million,respectively,forbondinterestexpense.CapitalAssets

At June30,2013, theMedicalCenterhad$136.5million invested in capital assets, netofaccumulated depreciation of $8.0 million. Depreciation charges for the year totaled$8.0million.

2013 2012 2011Land,buildingandimprovements $ 105,435,945 ‐ ‐Buildingserviceequipment 2,651,112 ‐ ‐Fixedequipment 2,395,668 ‐ ‐Majormoveableequipment 33,961,464 ‐ ‐Constructioninprogress ‐ 129,759,992 39,899,863

144,444,189 129,759,992 39,899,863Lessaccumulateddepreciation (7,958,326) ‐

Netpropertyandequipment $ 136,485,863 129,759,992 39,899,863

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)MANAGEMENT’SDISCUSSIONANDANALYSIS(CONTINUED)JUNE30,2013AND2012During 2013, the largest capital increases were within building and improvements($105.4million), moveable equipment ($34.0 million), building service equipment($2.7million) and fixed equipment ($2.4 million). These capital assets moved fromconstruction in progress in 2013 upon completion of construction. Some of the majorequipmentpurchasesincludedanMRI,aDaVincisurgicalrobot,amammographyunit,twoCT Scanners, and a radiographic‐fluoroscopic unit. The DaVinci surgical robot allowssurgeons to operate through a few small incisions and features a magnified 3D high‐definition vision system and enhanced dexterity, precision and control. The fluoroscopicunit is an imaging technique that uses X‐rays to obtain real timemoving images of theinternalstructures.DebtActivityTheMedicalCenter’sbondspayabletotaled$143.4millionatJune30,2013and2012and2011, respectively. The current portion of this debtwas $4.7million and $1.5million atJune30, 2013 and 2012, respectively. This debt is related toGNMACollateralized Series2010Aand2010Bbonds.ThecurrentportionofthedebtisexpectedtobepaiduponfinalendorsementwhichisanticipatedtooccurpriortoDecember31,2013.In January 2010, theMedical Center submitted amortgage insurance application to theU.S.DepartmentofHousingandUrbanDevelopment(HUD)foran insuredmortgage loantobefundedwiththeproceedsofbonds,tofinancetheconstructionofa200,000squarefoot Medical Center and 40,000 square foot connected medical office building. InSeptember 2010, HUD issued its commitment to insure, under the provisions of Section242oftheNationalHousingAct,amortgagenoteintheamountof$143,425,000.In November 2010, the Medical Center issued bonds totaling $143,425,000, including$133,425,000inaggregateprincipalamountof itsTaxableRevenueBuildAmericaBonds(DirectPay)(GNMACollateralized‐UNMSandovalRegionalMedicalCenterProject)Series2010A with a maturity date of July 20, 2036 and $10,000,000 in aggregate principalamountofitsTaxableRevenueRecoveryZoneEconomicDevelopmentBonds(DirectPay)(GNMACollateralized‐UNMSandovalRegionalMedicalCenterProject)Series2010Bwithamaturitydateof July20,2037. TheBondswere issuedpursuant toaTrust Indenture,datedOctober1,2010,byandbetweentheMedicalCenterandWellsFargoBank,NationalAssociation,astrusteeforthepurposeoffinancingtheMedicalCenter'sfacilityandtopaycertaincostsassociatedwiththeissuanceofthebonds.Additionally,UNMmadeanequitycontributionof$46milliontotheMedicalCenterofwhich$32,484,850weretobeusedtosustainthepre‐openingoperationalcostsandworkingcapitalneedsoftheMedicalCenter.

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)MANAGEMENT’SDISCUSSIONANDANALYSIS(CONTINUED)JUNE30,2013AND2012The remaining $13,515,150was theMedical Center’s equity capital contribution towardthe overall capital costs of the project. The ending balance of the operating equitycontribution for fiscal years ended June 30, 2013, 2012 and 2011 was $2.8 million,$26.5million and $30.6 million, respectively. The ending balance of the capital equitycontributionforfiscalyearsendedJune30,2013,2012and2011was$0,$4.6millionand$13.5million,respectively.TheloanguaranteeisconsideredfederalassistancesubjecttotherequirementsofOfficeofManagementandBudget(OMB)CircularA‐133andtheSingleAuditAct.Accordingly,theloanguarantee isconsidereda federalaward forpurposesofUNM’s June30,2013,2012and2011SingleAudit.ChangeinNetPositionTotal net positionas of June30, 2013decreasedby $14.0million to $19.0million,whichincludedanoperatinglossof$30.0millionpartiallyoffsetbynetnon‐operatingrevenuesof$16.0million. Unrestricted net position totaled $8.9 million at June30, 2013. Total netpositionasofJune30,2012decreasedby$13.8millionto$33.0million,whichincludedanoperating loss of $6.3million plus net non‐operating expenses $3.9million. At June30,2012, theunrestrictednetpositionwasnegative $6.5million. Total net position (assetsminus liabilities) is classified by theMedical Center’s ability to use these assets tomeetoperatingneeds.UnrestrictednetpositionmaybeusedtomeetalloperatingneedsoftheMedical Center. A portion of theMedical Center’s net position is restricted by the trustindentureanddebtagreement.FactorsImpactingFuturePeriodsOnAugust2,2013,theCentersforMedicare&MedicaidServices(CMS)releasedthefiscalyear2014InpatientProspectivePayment(IPPS)FinalRule.TheIPPSrateswillincreasebyamarketbasketincreaseof2.5%,lessa0.8%marketbasketreductionmandatedunderthePatientProtectionandAffordableCareAct(PPACA),lessa0.8%documentationandcodingreduction mandated by the American Taxpayer Relief Act of 2012, and less a 0.2%reductiontooffsetprojectedincreasesassociatedwithnewadmissionandmedicalreviewcriteriaforinpatientservices.Theimpactofthisreductionisexpectedtobeminimal.TheIPPSFinalRule implementsPPACAchanges toMedicareDisproportionate sharehospital(DSH) payments that will shift 25% of the DSH payment previously received using thetraditionalformulatobeincludedinthe“base”DRGpaymentsforeachMedicareinpatient

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)MANAGEMENT’SDISCUSSIONANDANALYSIS(CONTINUED)JUNE30,2013AND2012discharge. Remaining DSH funding will be redistributed based on each DSH‐eligiblehospital’s ratio of uncompensated care relative to the total for allDSH‐eligible hospitals.Low‐incomepatientdayswillbeusedtodeterminetheuncompensatedcareratios. Thisportion of the Medicare DSH funding will be paid as a flat amount on each Medicareinpatientdischarge.Atthistime,itisnotknownwhethertheMedicalCenterwillqualifyasaDSH provider. The IPPS Final Rule also allows hospitals to billMedicare Part B, afterreceiving a claim denial, for hospital services that were previously billed under Part A.HospitalshaveoneyearfromthedateofadmissiontobillPartBforadmissiononorafterOctober1,2013.On July 8, 2013, CMS issued the proposed calendar year 2014 Outpatient ProspectivePayment rule. CMS proposed to raise the base OPPS Payment rate by amarket basketincrease of 2.5%, less a productivity adjustment of 0.4% and reductions required underPPACA. The proposed rule includes packaging certain of services and supplies intopaymentforothersupportiveservices. Theseincludepackagingofdrugs,biologicalsandradiopharmaceuticals that function as supplies when used in diagnostic tests orprocedures; drugs and biologicals that function as supplies or devices in a surgicalprocedure; laboratory tests; procedures described by add‐on codes; certain ancillaryservices anddevice removal procedures. CMSalsoproposes to collapse the current fivelevelsofevaluationandmanagement(E&M)codesforoutpatientvisitsintoasinglecode.TheimpactoftheE&McodingchangeontheMedicalCenterisunknown.ThePatientProtectionandAffordableCareAct(PPACA)wasenactedonMarch23,2010.PPACA expands Medicaid eligibility provisions, Medicare and Medicaid reforms, andprivate insurance market reforms. Medicaid expansion under PPACA includes neweligibility criteria establishing a minimum floor for Medicaid coverage to 133% of theFederal Poverty Level (FPL), (with the 5% income disregard allowed in section 2002 ofPPACA,theeffectiverateis138%FPL),eliminatingothernon‐income‐basedcriteria(suchas age, disability, or asset testing). The populationmost impacted by the new optionaleligibility criteria is expected to be childless adults. States are also prohibited fromreducingMedicaid or Children’sHealth Insurance Program (CHIP) eligibility thatwas inplace on the date of PPACA enactment. PPACA provides additional federal financingthrough the Federal Medical Assistance Percentage (FMAP) for newly eligible Medicaidpatientsbeginningin2014.

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)MANAGEMENT’SDISCUSSIONANDANALYSIS(CONTINUED)JUNE30,2013AND2012PPACA includes legislation on Health Exchanges. Health Exchanges are expected tofacilitatethepurchaseofhealthinsuranceforqualifiedindividualsandsmallemployers.Aqualifiedindividualisalawfulresidentwithincomebetween133%and400%oftheFPL.FederalsubsidiesforpremiumsunderHealthExchangesbecomeavailablebeginning2014.HealthExchangesaredesignedtobe“one‐stop‐shopping”whereparticipantscancompareand purchase insurance coverage. Insurance coveragewill have essential health benefitsthatcoverbenefitcostsrangingfrom60%to90%without‐of‐pocketlimitsequaltohealthsavingsaccountcurrentlawlimits.HealthPlanreformsunderPPACAincludeasetofrequiredessentialbenefitsincluding,butnot limited to, emergency services, hospitalization,maternity and newborn care,mentalhealth and substance use disorder services, preventative and wellness services, andpediatricservices,includingoralandvisioncare.Plansmustalsonotrequirecopaymentordeductible on preventative services. For plan years beginning after September23, 2010,existingplansmustprovidecoveragetodependentchildrenuntilage26(unlesseligibleforother coverage), eliminate lifetime aggregate dollar limits and annual dollar limits onessentialbenefits,eliminatepre‐existingconditionexclusionsforchildrenuptoage19,andprohibitrescindingofcoverageexceptincasesoffraud,intentionalmisrepresentation,andnonpaymentofpremium.Effectivein2014,existinginsuranceplansmusteliminateannualaggregatebenefitlimits,providecoverageofdependentstoage26regardlessofeligibilityfor other coverage, eliminate pre‐existing condition limitations for adults, and eliminatewaitingperiodsofgreaterthan90days.On June 28, 2012, the US Supreme Court ruled on certain provisions of PPACA. Theydeclaredthatthe“individualmandate”requiringindividualstobuyinsuranceortopayafineamountedtoataxandthatthegovernmenthastheability to imposesuchatax.Theruling alsodeclared that states have the ability to not participate inMedicaid expansionand to avoid the penalties described in PPACA. PPACA also reduced the annual marketbasket increase for Medicare inpatient and outpatient hospital services for servicesrenderedonorafterOctober1,2010.Medicarehasputaprograminplacetoreviewhealthcareclaimsinorderto identifyandrecover inappropriate payments made to providers for fee‐for‐service Medicare. ThisprogramiscalledtheRecoveryAuditContract(RAC)programandwascreatedthroughtheMedicare Modernization Act of 2003 (MMA). The three‐year demonstration programidentifiedover$1billion inoverpayments. In2006,Congressmandatedexpansionof theRAC program to all 50 states. The RAC program encompassing New Mexico becameeffective in March2009. ConnollyConsulting Associates, Inc. is the contractor for thisregion.TheRACcontractorcanrequestup to399recordsevery45daysandcanreviewclaimsfromJune2008andforward.

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)MANAGEMENT’SDISCUSSIONANDANALYSIS(CONTINUED)JUNE30,2013AND2012The NewMexico Health and Human Services Department (NMHSD) will implement therevised New Mexico Medicaid program “Centennial Care” beginning January 1, 2014.NewMexicowillprovidecoveragebasedonhouseholdsizewithincomebelow138%ofthefederal poverty limits (FPL). NMHSD projects approximately 170,000 people will beeligible for this expanded coverage. The Medical Center estimates that a substantialportion of its current county indigent enrollment and 90% of UNM SCI patients will beeligible forMedicaid underCentennial Care. The State’s SCI programwill be eliminatedwithCentennialCareandenrolleesareexpectedtoenroll inCentennialCareorpurchaseinsurance on the NewMexicoHealth Insurance Exchange. TheMedicaid expansionwillprovidecoverageforpatientsthatarecurrentlyprovidedcareunderfinancialassistanceorasselfpay.However,therearelikelytobeimplementationrisksassociatedwithCentennialCare that could cause delays in Medicaid eligibility. The NMHSD is implementing neweligibilitysoftwarethatwillnotbefullyfunctionaluntilJanuary2014,whichmaycauseabackloginpatientenrollmentforthefirsthalfofcalendaryear2014.CentennialCarewillblend long term care, acute care services, and behavioral health into a single deliverysystem.ThemanagedcareorganizationsparticipatinginCentennialCarewillbereducedtofourthatwillcoverallservicescoveredunderCentennialCare.TheremaybedelaysincoverageasthischangeinparticipatingMCOsmaycausedelaysinenrollmentandpatienttophysicianassignment.The New Mexico Health Insurance Exchange (NMHIX) will be available to people withincomesabove138%FPLandwillprovidesubsidizedhealth insuranceup to400%FPL.NMHIX estimates approximately 187,000 adults will qualify for exchange coverage.Exchange enrollment will begin in October 2014. Due to the costs of health insuranceoffered,individualsmaychoosetooptoutofcoverage.Thereisalsotheriskthatemployergroupsmay reduce or eliminate existing coverage in favor of sending employees to theexchangetopurchasehealthinsurance.The Deficit Reduction Act of 2005 established the Medicaid Integrity Program (MIP) toidentify,collect,andpreventoverpaymentsmadeunderfee‐for‐serviceMedicaid.Thetwooperational functions of MIP are 1)to review the actions of those providing Medicaidservicesand2)toprovidesupportandassistancetothestatestocombatMedicaidfraud,wasteandabuse.Themilllevyisbasedonpropertyvalues.Giventhestateoftheeconomy,itispossiblethattheamountofthemilllevymayremainflatorpotentiallydecreaseastheresultofreducedpropertyvaluesandslowdownsinthebuildingconstructionindustry.

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)MANAGEMENT’SDISCUSSIONANDANALYSIS(CONTINUED)JUNE30,2013AND2012ContactingTheMedicalCenter’sFinancialManagementThis financial report is designed to provide the public with a general overview of theMedicalCenter’sfinancesandtoshowtheMedicalCenter’saccountabilityforthemoneyitreceives.Ifyouhavequestionsaboutthisreportorneedadditionalfinancialinformation,contact theMedicalCenter’sController’sofficeat3001BroadmoorBlvdNE,RioRancho,NM87144.

UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFUNIVERSITYOFNEWMEXICO)STATEMENTSOFNETPOSITIONJune30,2013and2012

Assets 2013 2012

Currentassets:Cashandcashequivalents $ 6,143,766 1,055,438Restrictedcashandcashequivalents:Heldbytrusteeforoperations 2,823,188 26,457,015Heldbytrusteefordebtservice 5,593,869 6,085,123Heldbytrusteeforcapitalacquisition 4,739,611 36,827,999

Receivables:Patient(netofallowancefordoubtfulaccountsandcontractualallowanceofapproximately$30,108,400in2013and$0in2012) 6,016,748 ‐

DuefromUniversityofNewMexicoHospital 1,298,586 ‐ DuefromUNMMedicalGroup 2,498,459 1,055,369Estimatedthirdpartysettlements 1,574,229 ‐ SandovalCountyTreasurer 126,280 ‐ Other 633,977 ‐

Totalnetreceivables 12,148,279 1,055,369

Prepaidexpenses 1,224,545 406,231 Prepaidmortgagepayments 2,760,569 ‐ Inventories 1,549,979 55,093

Totalcurrentassets 36,983,806 71,942,268

Noncurrentassets:Restrictedinvestments:Heldbytrusteeformortgagereservefund 1,677,025 ‐

Totalrestrictedinvestments 1,677,025 ‐

Capitalassets:Nondepreciableassets:Constructioninprogress ‐ 129,759,992

Depreciablecapitalassets,net 136,485,863 ‐

Capitalassets,net 136,485,863 129,759,992

Totalnoncurrentassets 138,162,888 129,759,992

Totalassets $ 175,146,694 201,702,260

Liabilities

Currentliabilities:Accountspayable $ 4,573,118 16,980,320Accruedpayroll 735,842 299,289 DuetoUniversityofNewMexicoHospital 863,209 208,055 DuetoUNMMedicalGroup 36,266 2,600,000Bondspayable–current 4,700,000 1,540,000Interestpayablebonds 3,252,063 2,892,719Accruedcompensatedabsences 1,202,130 239,991

Totalcurrentliabilities 15,362,628 24,760,374

Noncurrentliabilities:Bondspayable 138,725,000 141,885,000DuetoUNMMedicalGroup 2,040,000 2,040,000

Totalnoncurrentliabilities 140,765,000 143,925,000

Totalliabilities 156,127,628 168,685,374

NetPosition

Netinvestmentincapitalassets ‐ 2,344,125

Restricted,expendableForexpendablebequests,andcontributions 858 ‐ Inaccordancewiththetrustindentureanddebtagreement 10,094,083 37,124,103

Unrestricted 8,924,125 (6,451,342)

Totalnetposition $ 19,019,066 33,016,886

Seeaccompanyingnotestofinancialstatements.

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2013 2012

Operatingrevenues:Netpatientservicerevenue $ 18,927,175 ‐Otheroperatingrevenues 271,244 ‐

Totaloperatingrevenues 19,198,419 ‐

Operatingexpenses:Employeecompensation 19,314,403 3,128,773Depreciation 7,958,326 ‐Medicalandothersupplies 7,036,820 437,641Benefits 4,049,759 868,578Purchasedservices 3,943,527 1,350,156Medicalservices 3,516,365 ‐Equipment 2,061,880 342,335Occupancy 874,951 104,371Other 450,791 115,156

Totaloperatingexpenses 49,206,822 6,347,010

Operatingloss (30,008,403) (6,347,010)

Nonoperatingrevenues(expenses):SandovalCountymilllevy 20,832,519 ‐Federalbondsubsidy 2,225,243 2,326,495Interestincome,net 604,479 48,120Interestonbonds (6,504,125) (6,228,294)Bequestsandcontributions 1,083 ‐Othernonoperatingexpense (1,148,616) ‐

Netnonoperatingrevenues(expenses) 16,010,583 (3,853,679)

Decreaseinnetposition (13,997,820) (10,200,689)

Netposition,beginningofyear(2012asrestated‐seeNote13) 33,016,886 43,217,575

Netposition,endofyear $ 19,019,066 33,016,886


UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFUNIVERSITYOFNEWMEXICO)STATEMENTSOFREVENUES,EXPENSESANDCHANGESINNETPOSITIONYearsEndedJune30,2013and2012

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFUNIVERSITYOFNEWMEXICO)STATEMENTSOFCASHFLOWSYearsEndedJune30,2013and2012

2013 2012Cashflowsfromoperatingactivities:CashreceivedfromMedicareandMedicaid $ 2,854,165 ‐Cashreceivedfrominsuranceandpatients 7,645,951 ‐Cashpaymentstoemployees (17,915,711) (2,589,493)Cashpaymentstosuppliers (35,934,744) (2,728,088)CashpaymentstoUniversityofNewMexicoHospital (571,385) (81,686)CashpaymentstoUNMMedicalGroup (1,996,517) (1,451,440)Otherreceipts 271,244 ‐

Netcashusedinoperatingactivities (45,646,997) (6,850,707)

Cashflowsfromnoncapitalfinancingactivities:CashreceivedfromSandovalCountymilllevy 20,706,239 ‐Cashreceivedfromcontributions 1,083 ‐

Netcashprovidedbynoncapitalfinancingactivities 20,707,322 ‐Cashflowsfromcapitalfinancingactivities:Purchasesofcapitalassets (14,684,197) (76,501,429)Cashreceivedfromfederalbondsubsidy 2,225,243 2,326,444CashpaymentstoUNMMedicalGroupfornegativearbitragefund (2,600,000) (3,800,000)Interestpaymentsonbonds (6,504,125) (6,504,125)Cashpaymentsformortgagereservefund (1,677,025) ‐Principalpaymentsonmortgage (2,760,569) ‐Cashpaymentsformortgage‐relatedactivities(Mortgageservicing,MIP,GNMAguaranty) (789,272) ‐

Netcashusedincapitalfinancingactivities (26,789,945) (84,479,110)Cashflowsfrominvestingactivities:Interestoninvestments 604,479 324,002

Netcashprovidedbyinvestingactivities 604,479 324,002Net(decrease)incashandcashequivalents (51,125,141) (91,005,815)

Cashandcashequivalents,beginningofyear 70,425,575 161,431,390Cashandcashequivalents,endofyear $ 19,300,434 70,425,575


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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFUNIVERSITYOFNEWMEXICO)STATEMENTSOFCASHFLOWS(CONTINUED)YearsendedJune30,2013and2012

2013 2012

Reconciliationofoperatinglosstonetcashusedinoperatingactivities:Operatingloss $ (30,008,403) (6,347,010)Adjustmentstoreconcileoperatinglosstonetcashprovidedby(usedin)operatingactivities:Depreciationexpense 7,958,326 ‐Provisionfordoubtfulaccounts 9,478,955 ‐Changeinassetsandliabilities:Patientreceivables (15,495,703) ‐DuefromUniversityofNewMexicoHospital (1,298,586) ‐DuefromUNMMG (1,443,090) (1,055,369)Estimatedthirdpartypayersettlements (1,574,229) ‐Otherreceivablesandprepaidexpenses (1,452,291) (406,231)Inventories (1,494,886) (55,093)DuetoUniversityofNewMexico 655,154 126,369DuetoUNMMedicalGroup 36,266 (396,071)Accruedpayroll 436,553 299,289Accruedcompensatedabsences 962,139 239,991Accountspayable (12,407,202) 743,418Netcashusedinoperatingactivities $ (45,646,997) (6,850,707)

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)NOTESTOFINANCIALSTATEMENTSJUNE30,2013AND2012

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NOTE1. DESCRIPTIONOFBUSINESSUNMSandovalRegionalMedicalCenterInc.(theMedicalCenter)isacorporationorganizedby the Regents of the University of New Mexico (UNM) and existing as a New Mexicogovernment non‐profit and University Research Park and Economic Development Act(URPEDA) corporation. The Medical Center is governed by its Board of Directors (theBoard), which is empowered to do all things necessary for the proper operation of theMedical Center. UNM, by and through its Board of Regents, is the sole member of theMedical Center. UNM made an initial equity contribution to the Medical Center of$46,000,000.The Medical Center is located in Rio Rancho, New Mexico. The Medical Center is acommunityteachingMedicalCenterhavingcompletedthefinalstagesofconstructionandopenedandbegantoprovidepatientcareonJuly16,2012. TheMedicalCenterprovidesinpatient and outpatient services primarily to the residents of Sandoval County,NewMexico.The Medical Center consists of an approximately 200,000 square foot, 72 acute bed,communityteachingMedicalCenterandcorresponding40,000squarefootmedicalofficebuildingonasite locatedadjacenttothenewCityCenterinRioRancho,NewMexico. In2006,UNM acquired the land uponwhich theMedical Center is located and owns it feesimple.TheMedicalCenterisacomponentunitoftheUNMandisreportedassuchinthebasicfinancialstatementsofUNM.TheMedicalCenterhasnocomponentunits.NOTE2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIESBasisofPresentation. The accompanying financial statements have been prepared usingthe economic resource measurement focus and the accrual basis of accounting, inaccordancewithU.S.generallyacceptedaccountingprinciplesforhealthcareorganizations,andarepresentedinaccordancewiththereportingmodelasprescribedinGovernmentalAccounting Standards Board (GASB) Statement No.34, Basic Financial Statements – andManagement’sDiscussionandAnalysis– forStateandLocalGovernments, as amendedbyGASBStatement No.37, Basic Financial Statements – and Management’s Discussion andAnalysis– forStateandLocalGovernments:Omnibus; andGASBStatementNo.38,CertainFinancial Statement Note Disclosures. The Hospital follows the business‐type activities’


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NOTE2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(CONTINUED)requirementsofGASBStatementNo.34.ThisapproachrequiresthefollowingcomponentsoftheHospital’sfinancialstatements:

Management’sdiscussionandanalysis.

Basicfinancialstatements,includingastatementsofnetposition,statementsofrevenues,expenses,andchangesinnetposition,andstatementsofcashflowsusingthedirectmethodfortheHospitalasawhole.

Notestofinancialstatements.

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

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

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

Unrestricted Net Position – Assets that are not subject to externally imposed

constraints. Unrestricted net positionmay be designated for specific purposes byactionoftheBoardofTrustees.

Changes inAccountingPoliciesandStatements.Effective July 1, 2012, theMedical Centeradopted GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources,DeferredInflowofResources,andNetPosition,andGASBStatementNo.65,ItemsPreviouslyReportedasAssetsandLiabilities.TheprimaryeffectsofimplementingGASBstatementNo.63wastochangeallpreviousreferencesfrom“netassets”to“netposition,”changethelineitemfor“investedincapitalassets,netofrelateddebt”to“netinvestmentincapitalassets,”andtoclassifycertainassetsandliabilitiesas“deferredinflows”and“deferredoutflows.”AtJune30,2013,theMedicalCenterhadnoitemsmeetingthecriteriaof“deferredinflows”or “deferred outflows.” In accordancewith GASB Statement No. 65, theMedical CenterrestatedtheNetPositionasofJuly1,2011toremovebondissuancecosts(seeNote13).


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NOTE2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(CONTINUED)UseofEstimates.ThepreparationoffinancialstatementsinaccordancewithU.S.generallyacceptedaccountingprinciplesrequiresmanagementtomakeestimatesandassumptionsthataffect thereportedamountsofassetsand liabilitiesandthedisclosureofcontingentassetsandliabilitiesatthefinancialstatementdates,andthereportedamountofrevenuesandexpensesduringthereportingperiods.Duetouncertaintiesinherentintheestimationprocess,actualresultscoulddifferfromthoseestimates.Cash and Cash Equivalents. The Medical Center considers all highly liquid investments(excludingrestrictedinvestments)purchasedwithanoriginalmaturityofthreemonthsorlesstobecashequivalents.TheMedicalCenterfollowsGASBStatementNo.40,DepositandInvestmentRiskDisclosures–anamendmentofGASBStatementNo.3.Thisstatementaddressescommondepositandinvestmentrisksrelatedtocreditrisk,concentrationofrisk,interestraterisk,andforeigncurrencyrisk, andalso requirescertaindisclosuresof investmentsat fairvalues thatarehighly sensitive to changes in interest rates, as well as deposit and investment policiesrelatedtotherisksidentifiedinthestatement.RestrictedCashandCashEquivalents.TheMedicalCenterhasthreetypesofrestrictedcashand cash equivalents. The first type is held by the trustee for operations and is theremainingbalanceoftheequitycontributedbyUNM.Theheldbytrusteefordebtserviceis used for the principal component of debt service. The held by trustee for capitalacquisitions consistsof remainingproceeds from theSeries2010bond in theamountof$4,739,611and$32,246,034asof June30,2013and2012, respectively, aswell asothercash balances held by trustee that are restricted for capital acquisition, of none and$4,581,964,respectively.PatientReceivables.TheMedicalCenterrecordsthisbalanceattheestimatednetrealizablevalueafterdeductingcontractualdiscountsandallowances,freeserviceandallowanceforuncollectibleaccounts.PrepaidMortgage Payments. Beginning August, the Medical Center has made principalpayments on the mortgage loan that guarantees the Series 2010 bond issuance. ThemortgageservicerisretainingtheprincipaluntilfinalendorsementafterwhichtheprepaidmortgagepaymentswillbeusedtoservicethecurrentportionoftheprincipalamountoftheSeries2010bonds.


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NOTE2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(CONTINUED)Inventories. Inventories consisting of medical, surgical and maintenance supplies, andpharmaceuticals are stated at the lower of cost ormarket. Cost is determined using thefirst‐in, first‐out valuationmethod, except that the replacement costmethod is used forpharmacyandoperatingroominventories.RestrictedInvestmentsNoncurrent.TheMedicalCenterhasestablishedaMortgageReserveFund in accordance with the requirements and conditions of the FHA RegulatoryAgreement. Notwithstanding any other provision in the Regulatory Agreement, theMortgage Reserve Fundmay be used byHUD if theMedical Center is unable tomake amortgage note payment on the due date. The Medical Center is required to makecontributionstothefundbasedontheMortgageReserveFundschedule.Capital Assets. Capital assets are stated at cost or at estimated fair value on date ofacquisition.TheMedicalCenter’scapitalizationpolicy forassets includesall itemswithaunit cost ofmore than $5,000 aswell as for the first year of capitalization, items in theaggregatewhosetotalcostismorethan$5,000.Depreciationoncapitalassetsiscalculatedusingthestraight‐linemethodovertheestimatedusefullivesoftheassetsasindicatedinthe “EstimatedUsefulLives ofDepreciableMedical CenterAssets,”Revised2008EditionpublishedbytheAmericanMedicalCenterAssociation.Repairsandmaintenancecostsarecharged to expense as incurred. On a quarterly basis, theMedical Center assesses long‐livedassetsinordertodeterminewhetherornotitisnecessarytoretire,replace,orimpairbasedonconditionoftheassetsandtheirintendeduse.Net Investment inCapitalAssets. Net investment in capital assets represents theMedicalCenter’stotalinvestmentincapitalassets,netofoutstandingdebtrelatedtothosecapitalassets.Totheextentdebthasbeenincurredbutnotyetexpendedforcapitalassets,suchamounts are not included as a component of net investment in capital assets. There are$4,739,611 and $32,246,034 in unspent bond proceeds at June 30, 2013, and 2012,respectivelyOperatingRevenuesandExpenses. TheMedicalCenter’sstatementofrevenues,expenses,and changes innetpositiondistinguishesbetweenoperatingandnonoperating revenuesandexpenses.Operatingrevenues, suchaspatientservicerevenue, result fromexchangetransactionsassociatedwithprovidinghealthcareservices, theMedicalCenter’sprincipalactivity. Exchange transactions are those inwhich eachparty to the transaction receivesand gives up essentially equal values. Operating expenses are all expenses incurred toprovidehealthcareservices.


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NOTE2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(CONTINUED)NetPatientServiceRevenues. Netpatientservicerevenuesarerecordedat theestimatednet realizable amount due from patients, third‐party payers, and others for servicesrendered. Retroactive adjustments under reimbursement agreements with third‐partypayersareaccruedonanestimatedbasis in theperiodtherelatedservicesarerenderedandadjustedinfutureperiodsasfinalsettlementsaredetermined.Contractualadjustmentsresultingfromagreementswithvariousorganizationstoprovideservices for amounts that differ from billed charges, including services underMedicare,Medicaid, and certainmanaged care programs, are recorded as deductions from patientrevenues.CharityCare.TheMedicalCenterprovidescaretopatientswhomeetcertaincriteriaunderits charity care policywithout charge or at amounts less than its established rates. TheMedical Center does not pursue collection of amounts determined to qualify as charitycare;therefore,theyaredeductedfromgrossrevenue,withtheexceptionofcopayments.NonoperatingRevenuesandExpenses. Nonoperatingrevenueincludesactivities thathavethecharacteristicsofnon‐exchangetransactions,suchasinvestment income,governmentlevies, and gifts. These revenue streams are recognized under GASBStatement No.33,AccountingandFinancialReporting forNon‐exchangeTransactions. Investment income isrecognized in theperiodwhen it isearned.Themill levy isrecognized in theperiod it iscollected by the County. Bequests and contributions are recognized when all applicableeligibility requirements have beenmet. Nonoperating expenses also include interest onbonds,mortgageservicingfeesandtheGNMAguarantyfees.SandovalCountyMillLevyTaxes.TheamountofthepropertytaxlevyisassessedannuallyonJanuary1onthevaluationofpropertyasdeterminedbytheCountyAssessorandisduein equal semi‐annual installments on November10 and April10 of the next year. Taxesbecome delinquent 30days after the due date unless the original levy date has beenformally extended. Taxes are collected on behalf of the Medical Center by the CountyTreasurer and are remitted to the Medical Center in the month following collection.RevenueisrecognizedinthefiscalyearthelevyiscollectedbytheCounty.


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NOTE2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(CONTINUED)FederalBondSubsidy. TheMedical Center receives subsidypayments related to interestpayments under the federal Build America Bond and Taxable Revenue Recovery ZoneEconomicDevelopmentBondprograms.Thesesourcesoffundsareaccountedforasnon‐operating revenues and recorded as they are received. Under the program, theMedicalCenter applies for subsidy funds commensurate with each bond payment, so theapplicationforthesubsidyismadesemiannually. FortheyearsendedJune30,2013and2012, theMedicalCenter recognized$2,225,243and$2,326,495 in federalbond subsidyrevenue,respectively.IncomeTaxes. TheMedical Center has received a determination letter from the InternalRevenueService(IRS)thatitisanorganizationdescribedinInternalRevenueCodesection501(c)(3).Assuchitwouldbeexemptfromfederalincometaxonincomegeneratedfromactivities related to its exempt function. Furthermore, the Medical Center previouslyreceivedadiscretionaryrulingfromtheIRSunderRevenueProcedure95‐48,excludingitfrom the requirement to file certain information returns. Changesmade by the PensionProtection Act removed the IRS’s discretionary authority to waive these filingrequirements.Subsequentfailurestofilewouldresult inautomaticrevocationofexemptstatus.TheIRSisexpectedtoissuefurtherguidancetoassistorganizationswithRev.Proc.95‐48 rulings inmaintaining exempt status. TheMedical Center intends tomonitor andcomplywiththisguidance.Accordingly,noprovisionforincometaxeshasbeenmade.Classification. Certain 2012 amounts have been reclassified to conform to the 2013presentation.NOTE3. CASHANDCASHEQUIVALENTS,ANDINVESTMENTS

CashandCashEquivalents

Deposits. The Medical Center’s deposits are held in demand accounts with a financialinstitution.The carrying amounts of the Medical Center’s deposits with financial institutions atJune30,2013and2012are$6,141,966and$1,054,088,respectively.


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NOTE3. CASHANDCASHEQUIVALENTS,ANDINVESTMENTS(CONTINUED)BankbalancesarecategorizedatJune30,asfollows:

2013 2012AmountinsuredbytheFederalDeposit

InsuranceCorporation(FDIC) $ 250,000 250,000Othercash 5,988,820 804,088

$ 6,238,820 1,054,088

Interest‐bearingdepositaccountsaresubjecttoFDIC’sstandarddepositinsuranceamountof$250,000.RestrictedCashandCashEquivalentsIn connection with the 2010 Financing Transaction, as a requirement of the TrustIndentureandtheFinancingAgreement,theMedicalCenterwasrequiredtoestablishtrustfunds for the deposit of restricted bondproceeds, the required capital contribution, andotherrestrictedcontributionsbytheMedicalCenter.ThebookbalancesofthetrustfundswereasfollowsatJune30:

2013 2012

Operatingcapitalescrowfund $ 2,823,188 26,457,015Debtservicefund 5,593,869 6,085,123Capitalacquisitionfund 4,739,611 36,827,999Totalrestrictedcashandcashequivalents $ 13,156,668 69,370,137

YearEndedJune30,

Operating Capital Escrow Fund – Established to hold the portion of the equitycontribution that was made for working capital purposes, as required by the FederalHousing Administration. Draws against this fund are requested from and approved byHUDtocovermonthlypre‐openingandpost‐openingexpenses


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NOTE3. CASHANDCASHEQUIVALENTS,ANDINVESTMENTS(CONTINUED)Debt Service Fund – Established to collect the interest income and necessary funds tomake the semi‐annual coupon payments for the bonds. This fund also includes adepository account for the proceeds received from the BuildAmericaBond andTaxableRevenueRecoveryZoneEconomicDevelopmentBondpayments.CapitalAcquisitionFund–Proceedsfromthesaleofthebondswereplacedinthisfund.Drawsonthisfundaremadetooffsetthecertificatesissuedfromthemortgagorduringtheconstructionperiod. This fundalso includestheCapitalEscrowFundestablishedtoholdtheportionoftheequitycontributionthatwasmadeforcapitalpurposes,asrequiredbythe Federal Housing Administration. Draws against this fund are requested from andapprovedbyHUDtopurchasecapitalassetsusedfortheconstructionofthebuilding. InterestRateRisk–DebtInvestments.Currently,theMedicalCenterdoesnothaveaspecificpolicytolimititsexposuretointerestraterisk.TheMedicalCenterholdsnoinvestmentsthataresubjecttointerestraterisk.AsummaryoftherestrictedcashandcashequivalentsatJune30,2013and2012andtheirexposuretointerestrateriskisasfollows:

June30,2013Lessthan

FairValue 1YearItemsnotsubjecttointerestraterisk:

Moneymarketfund $ 13,156,668 13,156,668Itemsnotsubjecttointerestraterisk 13,156,668 13,156,668Totalrestrictedcashandcashequivalents $ 13,156,668 13,156,668

June30,2012Lessthan


Moneymarketfund $ 69,370,137 69,370,137Itemsnotsubjecttointerestraterisk 69,370,137 69,370,137Totalrestrictedcashandcashequivalents $ 69,370,137 69,370,137


29

NOTE3. CASHANDCASHEQUIVALENTS,ANDINVESTMENTS(CONTINUED)CustodialCreditRisk–DebtInvestments.AsofJune30,2013and2012,theMedicalCenterdebtinvestmentsthataresubjecttocustodialcreditrisk.TheMedical Center’s custodial risk policy for the bond proceeds conforms to the TrustIndenture,andtheTrusteeholdstheinvestmentsinsafekeeping.CreditRisk–DebtInvestments.TheMedicalCenterisrequiredtodisclosecreditratingsofitsdebt investments inorder toassess credit risk.U.S.obligations, investmentsexplicitlyguaranteed by the U.S.government, and non‐debt investments are excluded from thisrequirement. Currently, the Medical Center does not have a specific policy to limit itsexposuretocreditrisk.

2013 2012Rating FairValue Rating FairValue

Itemssubjecttocreditrisk:Moneymarketfund Notrated $ 13,156,668 Notrated 69,370,137Totalitemssubject

tocreditrisk 13,156,668 69,370,137Totalrestrictedcashandcash

equivalents $ 13,156,668 69,370,137

Long‐TermInvestmentsInterestRateRisk–DebtInvestments.Currently,theMedicalCenterdoesnothaveaspecificpolicytolimititsexposuretointerestraterisk.TheMedicalCenterholdsnoinvestmentsthataresubjecttointerestraterisks.Asummaryof the long term investmentsat June30,2013and theirexposure to interestrateriskisasfollows:

June30,2013Lessthan


Moneymarketfund $ 1,677,025 1,677,025Itemsnotsubjecttointerestraterisk 1,677,025 1,677,025Totallong‐terminvestments $ 1,677,025 1,677,025


30

NOTE3. CASHANDCASHEQUIVALENTS,ANDINVESTMENTS(CONTINUED) AsofJune30,2012,theMedicalCenterdidnotholdanylongterminvestments.CustodialCreditRisk–DebtInvestments.AsofJune30,2013and2012,theMedicalCenterheldnoU.S.governmentobligationsforlong‐terminvestmentpurposes.TheMedical Center’s custodial risk policy for the bond proceeds conforms to the TrustIndenture,andtheTrusteeholdstheinvestmentsinsafekeeping.CreditRisk–DebtInvestments.TheMedicalCenterisrequiredtodisclosecreditratingsofitsdebtinvestmentsinordertoassesscreditrisk.U.S.obligations,investmentsexplicitlyguaranteed by the U.S.government, and non‐debt investments are excluded from thisrequirement. Currently, the Medical Center does not have a specific policy to limit itsexposuretocreditrisk.

2013 2012Rating FairValue Rating FairValue

Itemssubjecttocreditrisk:Moneymarketfund Notrated $ 1,677,025 Notrated —Totalitemssubject

tocreditrisk 1,677,025 —

Totallongterminvestments $ 1,677,025 —


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NOTE4. CONCENTRATIONOFRISKThe Medical Center receives payment for services rendered to patients under paymentarrangementswithpayors,whichinclude:(i)MedicareandMedicaid,(ii)otherthird‐partypayors including commercial carriers and health maintenance organizations, and (iii)others.ThefollowingsummarizespatientaccountsreceivableandthepercentageofgrossaccountsreceivablefromallpayorsasofJune30:

MedicareandMedicaid $ 12,609,943 35%Otherthirdpartypayors 13,750,828 38%Others 9,764,377 27%

Totalpatientaccountsreceivable 36,125,148 100%

Lessallowanceforuncollectibleaccountsandcontractualadjustments (30,108,400)

Patientaccountsreceivable,net $ 6,016,748

2013

NOTE5. ESTIMATEDTHIRD‐PARTYPAYORSETTLEMENTSThe Medical Center is reimbursed by the Medicare and Medicaid programs on aprospective payment basis for hospital services, with certain items reimbursed at aninterimratewith final settlementdeterminedafter submissionofannual cost reportsbythe Medical Center. The annual cost reports are subject to audit by the MedicareAdministrative Contractor and the Medicaid audit agent. Retroactively calculatedcontractualadjustmentsarisingunderreimbursementagreementswiththird‐partypayorsare accrued on an estimated basis in the period the related services are rendered andadjustedinfutureperiodsasfinalsettlementsaredetermined. Theestimatedsettlementfor2013isareceivableof$1,574,299.


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NOTE6. CAPITALASSETSThemajorclassesofcapitalassetsatJune30andrelatedactivityfortheyearthenendedareasfollows:

Beginning EndingBalance Additions Transfers Retirements Balance

UNMMedicalCenterCapitalAssetsnotbeingdepreciated:

Land ‐$ConstructioninProgress 129,759,992 15,294,218 (145,054,210) ‐ ‐

129,759,992 15,294,218 (145,054,210) ‐ ‐UNMMedicalCenterdepreciablecapitalassets:

LandImprovements ‐ ‐ ‐Buildingandbuildingimprovements ‐ ‐ 105,435,945 ‐ 105,435,945BuildingServiceEquipment ‐ ‐ 2,651,112 ‐ 2,651,112FixedEquipment ‐ ‐ 2,395,668 ‐ 2,395,668MajorMoveableEquipment ‐ ‐ 34,571,485 (610,021) 33,961,464Totaldepreciablecapitalassets ‐ ‐ 145,054,210 (610,021) 144,444,189

LessAccumulateddepreciationfor:

LandImprovements ‐ ‐Buildingandbuilding ‐ ‐improvements ‐ (2,505,013) (2,505,013)BuildingServiceEquipment ‐ (219,052) (219,052)FixedEquipment ‐ (148,636) (148,636)MajorMoveableEquipment ‐ (5,197,462) 111,837 (5,085,625)TotalAccumulateddepreciation ‐ (8,070,163) ‐ 111,837 (7,958,326)

UNMMedicalCenterdepreciablecapitalassets,net ‐ (8,070,163) 145,054,210 (498,184) 136,485,863

UNMMedicalCenterCapitalAssetsnotbeingdepreciated 129,759,992$ 15,294,218 (145,054,210) ‐ ‐

UNMMedicalCentertotalcostofcapitalassets 129,759,992 15,294,218 ‐ (610,021) 144,444,189

LessAccumulatedDepreciation ‐ (8,070,163) ‐ 111,837 (7,958,326)

UNMMedicalCentercapitalassets,net 129,759,992$ 7,224,055 ‐ (498,184) 136,485,863


Beginning EndingBalance Additions Transfers Retirements Balance

UNMMedicalCenterCapitalAssetsnotbeingdepreciated:

Land ‐$ConstructioninProgress 39,899,863 89,860,129 ‐ ‐ 129,759,992

39,899,863 89,860,129 ‐ ‐ 129,759,992



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NOTE7. COMPENSATEDABSENCESQualifiedMedicalCenteremployeesareentitledtoaccruesick,holidayandannualleaveasoneinclusivePaidTimeOff(PTO)bankbasedontheirFull‐TimeEquivalent(FTE)status.Full‐timeemployeeswith zero to sevenyearsof service accrue11.07hoursofPTOeachpayperiod(36daysperannum)uptoamaximumof500hourstobeusedforsick,holidayandannualleave.Full‐timeemployeeswithyearsofserviceinexcessofsevenyearsaccrue12.61hoursofPTOeachpayperiod(41daysperannum)uptoamaximumof500hourstobe used for sick, holiday and annual leave. Part‐time employees earn PTO leave on aprorated basis each pay period. When publicized by the Medical Center each year,employeeshavetheopportunitytoexchangeforcashat80%oftheirhourlyrateallhoursaccumulated inexcessof80hours.At termination,employeesareeligible forpaymentofunusedaccumulatedhoursat100%oftheirregularhourlyrate.AccruedPTOasofJune30,2013and2012of$1,202,130and$239,991,respectively,iscomputedbymultiplyingeachemployee’scurrenthourlyratebythenumberofhoursaccrued.DuringtheyearsendedJune30,2013and2012,thefollowingchangesoccurredinaccruedcompensatedabsences:

Balance BalanceJuly1,2012 Increase Decrease June30,2013

$ 239,991 1,782,741 (820,602) $ 1,202,130

Balance BalanceJuly1,2011 Increase Decrease June30,2012

$ ‐ 286,330 (46,339) $ 239,991

Thebalancesabove includeannual leave, sick leave, andholidayasdisclosedabove.Theportionofaccruedcompensatedabsencesdueafteroneyearisnotmaterialand,therefore,isnotpresentedseparately.


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NOTE8. BONDSPAYABLE

InNovember2010,theMedicalCenterissued$133,425,000inaggregateprincipalamountof its Taxable Revenue Build America Bonds (Direct Pay) (GNMA Collateralized ‐ UNMSandovalRegionalMedicalCenterProject) Series2010Awithamaturitydateof July20,2036 and $10,000,000 in aggregate principal amount of its Taxable Revenue RecoveryZone Economic Development Bonds (Direct Pay) (GNMA Collateralized ‐ UNM SandovalRegionalMedicalCenterProject)Series2010BwithamaturitydateofJuly20,2037.TheBonds were issued pursuant to a Trust Indenture, dated as of October 1, 2010, by andbetweentheMedicalCenterandWellsFargoBank,NationalAssociation,asTrusteeforthepurposeoffinancingtheMedicalCenterfacilityandtopaycertaincostsassociatedwiththeissuanceofthebonds.ThebondswereissuedasspeciallimitedobligationsoftheMedicalCenterandaresecuredprimarilybyfullymodifiedmortgagebackedsecuritiesintheaggregateprincipalamountof $143,425,000 (the “GNMA Securities”), to be issued by Prudential Huntoon PaigeAssociates,Ltd.(the“Lender”),guaranteedastoprincipalandinterestbytheGovernmentNationalMortgageAssociation(“GNMA”),withrespecttotheMortgageNote.Under the GNMAMortgage Backed Securities Program, the GNMA Securities are a “fullymodifiedpass‐through”mortgage‐backedsecurityissuedandservicedbytheLender.ThefaceamountoftheGNMASecuritiesistobethesameamountastheoutstandingprincipalbalanceoftheMortgageNote.TheLenderisrequiredtopassthroughtotheTrustee,astheholder of the GNMA Securities, by the 15th day of each month, the monthly scheduledinstallmentsofprincipalandinterestontheMortgageNote(lesstheGNMAguaranteefeeandtheLender’sservicingfee),whetherornottheLenderreceivessuchpaymentfromtheMedicalCenterundertheMortgageNote,plusanyunscheduledprepaymentsofprincipaloftheMortgageNotereceivedbytheLender.TheGNMASecuritiesareissuedsolelyforthebenefitoftheTrusteeonbehalfoftheBondholdersandanyandallpaymentsreceivedwithrespecttotheGNMASecuritiesaresolelyforthebenefitoftheBondholders.EffectiveOctober1,2010,theMedicalCenterenteredintoaFinancingAgreementwiththeLenderandtheTrustee.UndertheFinancingAgreement,theLenderagreedtooriginateaMortgageNoteinfavoroftheLenderandsecuredbyaleaseholdmortgageontheproject.TheMortgageNoteisinsuredbytheFederalHousingAdministration(“FHA”)pursuanttoSection242oftheNationalHousingActof1934andtoprovidesecurityfortheBonds,theTrustee will use the proceeds of the Bonds to purchase from the Lender the GNMASecurities. TheMedical Center has agreed to use the proceeds of theMortgageNote toacquire,construct,andequiptheconstructionoftheMedicalCenter.


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NOTE8. BONDSPAYABLE(CONTINUED)

UnderthetermsoftheTrustIndenture,theMedicalCenterhasgrantedtotheTrusteeallrights, title, and interests to all revenues, receipts, interest, income, investment earningsandothermoniesreceivedortobereceivedbytheTrustee,includingmoniesreceivedorto be received from the GNMA Securities and all investment earnings from the GNMASecurities.UponissuanceoftheBonds,theproceedswereplacedintrustwiththeTrustee,and theproceedsare tobeused topurchase from the lender theGNMASecurities, or toredeem the bonds according to the various early, optional, and mandatory redemptionprovisionsoftheBonds.As of June 30, 2013, the balance of theMortgage note did not equal the balance of theGNMA securities since effective August 2012, theMedical Centerwas obligated tomakemonthlymortgageprincipalpayments;therefore,theprincipalpaymentsonthemortgagearelistedasacurrentassetintheaccompanyingfinancialstatementsasprepaidmortgagepayments.AsofJune30,2012,thebalanceoftheMortgageNoteequaledthebalanceoftheGNMA securities therefore the amountswere offset in 2012 and arenot reported in theaccompanyingfinancialstatements.ThetermsoftheBondsIssuedareasfollows: Maturity Principal Interest Bond Date Amount RateSeries2010A July20,2036 $ 133,425,000 4.50%Series2010B July20,2037 $ 10,000,000 5.00%TheMedical Center is eligible to receive cash subsidy payments from the United StatesDepartmentofTreasuryequalto35%oftheinterestpayableontheBuildAmericaBonds(Series 2010A), and 45% of the interest payable on the Recovery Zone EconomicDevelopmentBonds(Series2010B),payableonorabouteachrespectiveinterestpaymentdate,whichpaymentslowertheoveralltruecostofthebondsto3.33%. PursuanttotheBudgetControlActof2011,aspostponedbytheAmericanTaxPayerReliefActof2012,thebudget sequestration impactwasa reductionof8.7%,effectiveMarch1,2013. ThishadtheeffectofchangingthesubsidypaymentfromtheUnitedStatesDepartmentofTreasuryequal to31.96%of the interestpayableon theBuildAmericaBonds(Series2010A),and41.09%oftheinterestpayableontheRecoveryZoneEconomicDevelopmentBonds(Series2010B).


36

NOTE8. BONDSPAYABLE(CONTINUED)ThefollowingschedulesummarizesthescheduledmandatoryredemptionrequirementsoftheSeries2010AandSeries2010BbondsasofJune30,2013:

FiscalYear Principal Interest Principal Interest Principal Interest

2014 4,700,000$ 5,899,726 500,000 4,700,000 6,399,7262015 3,310,000 5,755,838 500,000 3,310,000 6,255,8382016 3,470,000 5,605,088 500,000 3,470,000 6,105,0882017 3,635,000 5,447,138 500,000 3,635,000 5,947,1382018 3,815,000 5,281,538 500,000 3,815,000 5,781,538

2019‐2023 21,985,000 23,630,965 2,500,000 21,985,000 26,130,9652024‐2028 27,800,000 18,121,166 2,500,000 27,800,000 20,621,1662029‐2033 35,160,000 11,153,365 2,500,000 35,160,000 13,653,3652034‐2038 29,550,000 2,691,676 10,000,000 2,109,125 39,550,000 4,800,801

133,425,000$ 83,586,500 10,000,000 12,109,125 143,425,000 95,695,625

Series2010ABonds Series2010BBonds Total

ThebondsaresubjecttovariousredemptionprovisionsassetforthintheTrustIndenture,includingSpecialMandatoryRedemption,ScheduledMandatoryRedemption,andOptionalRedemption. The Special Mandatory Redemption provisions are contingent on variousevents, includingbutnot limitedtocircumstancesthatresult inthetrustestatereceivingearly payments on the GNMA Securities, or in the event the balance of GNMA Securitiesaftercompletionoftheconstructionarelessthantheamountofoutstandingbonds.AsofJune30,2013,theMedicalCenterhasabalanceof$4.7millionleftfromtheoriginalbondproceeds. TheMedicalCenter is estimated to complete final endorsementof theprojectpriortoDecember31,2013uponwhichanyremainingbalanceunspentfromtheoriginalbondproceedswillbeusedforaSpecialMandatoryRedemption.TheOptionalRedemptionprovision allows an early redemption of the bonds in whole or in part on or afterJanuary20,2021.MortgageNoteTheMortgageNotebearsinterestat4.61%.TheMortgageNotehasatermof299monthsfollowingthecommencementofamortizationandmaturesonJuly1,2037. Principalandinterestarepayableinequalmonthlyinstallmentsuponcommencementofamortization.Amortgageservicingfeeof12basispointsandaGNMAguarantyfeeof13basispointsarealsoincludedinthemonthlypayment,foratotalof4.86%.TheMortgageNoteissubjecttooptional prepayment beginning on January 20, 2021 or thereafter, and mandatoryprepaymentatanytimebasedontheoccurrenceofcertainevents,includingthereceiptofanymortgageinsuranceproceeds.


37

NOTE8. BONDSPAYABLE(CONTINUED)In connectionwithGNMA insuring theMortgageNote, during2011 theRegents ofUNMmadeanequitycontributionof$46,000,000totheMedicalCenter,whichwasplacedintwoescrowaccounts,oneintheamountof$32,484,850inanaccounttitledOperatingCapitalEscrow Fund and the other in the amount of $13,515,150 in an account titled CapitalEscrow Fund with the Trustee. The Operating Capital funds were to sustain the pre‐opening operational costs andworking capital needs of theMedical Center. The CapitalEscrowFundwastheMedicalCenter’scapitalcontributiontothecostsofconstruction.NOTE9. NETPATIENTSERVICEREVENUESThemajorityoftheMedicalCenter’srevenueisgeneratedthroughagreementswiththird‐partypayers thatprovide for reimbursement to theMedicalCenter at amountsdifferentfrom its established charges.Approximately27%and28%of theMedical Center’s grosspatientrevenueforthefiscalyearendedJune30,2013,wasderivedfromtheMedicareandMedicaid programs, respectively, the continuation of which are dependent upongovernmental policies. Laws and regulations governing the Medicare and Medicaidprogramsareextremelycomplexandsubjecttointerpretation.Asaresult,thereisatleasta reasonable possibility that recorded revenue estimates could change as a result ofregulatory review. Contractual adjustments under third‐party reimbursement programsrepresent thedifferencebetween theMedical Center’sbillings at established charges forservices and amounts reimbursed by third‐party payers. A summary of the basis ofreimbursementfrommajorthird‐partypayersfollows:Medicare – Inpatientacutecareservices rendered toMedicareprogrambeneficiariesarepaid at prospectively determined rates per discharge. These Medical Severity DiagnosisRelated Group (MS‐DRG) rates vary according to a patient classification system that isbased on clinical, diagnostic, and other factors. Most Medicare outpatient services areprospectively paid through Medicare’s Outpatient Prospective Payment system (OPPS).Services excluded from theOPPS andpaidunder separate fee schedules include: clinicallab, certain rehabilitation services,durablemedical equipment, renaldialysis treatments,ambulanceservices,andprofessionalfeesofphysiciansandnonphysicianpractitioners.


38

NOTE9. NETPATIENTSERVICEREVENUES(CONTINUED)Medicaid – Inpatient acute care services rendered to Medicaid Fee‐for‐Service (FFS)programbeneficiariesarepaidatprospectivelydeterminedratesperdischargebasedupontheMS‐DRGsystem.Theseratesvaryaccordingtoclinicalfactorsandpatientdiagnosis.Inaddition,theMedicalCenterhasreimbursementagreementswithcertainManagedCareOrganizations(MCOs)thathavecontractedwiththeStateofNewMexicoSALUD!programto administer services to enrolled Medicaid beneficiaries. The basis for reimbursementundertheseagreementsincludesprospectivelydeterminedrates(MS‐DRG)orperdiemforinpatientservices,andprospectivelydeterminedpaymentsforoutpatientservices.TheMedicalCenterseespatients thatareenrolled in theNewMexicoSCIMedicaidplan.TheCenterparticipatesinthereimbursementagreementbetweenUNMHospitalsandtheStateofNewMexico.Funding ismodeledaftera capitatedpaymentprogram. Fundsareremitted to UNM Hospitals on a per‐member‐per‐month basis for all state‐approvedmembers.UNMHospitalsremitsfundstotheMedicalCenterbasedontheproratashareoftheadjudicatedclaims for thesepatients. Fundingunder theSCIprogram for fiscalyearendedJune30,2013was$644,231,andisincludedinnetpatientservicerevenue.Other–TheMedicalCenterhasalsoenteredintoreimbursementagreementswithcertaincommercial insurancecarriers,healthmaintenanceorganizations,andpreferredproviderorganizations.Thebasisforreimbursementundertheseagreementsincludesprospectivelydetermined rates‐per‐discharge, discounts from established charges, and prospectivelydeterminedperdiemrates.AsummaryofnetpatientrevenuesfollowsfortheyearendedJune30:

2013

Chargesatestablishedrates 59,249,376$Charitycare (1,053,561)Contractualadjustments (29,789,685)Provisionfordoubtfulaccounts (9,478,955)Netpatientservicerevenues 18,927,175$


39

NOTE10. CHARITYCARETheMedicalCentermaintains records to identifyandmonitor the levelof charity care itprovides.Theserecordsincludetheamountofchargesforegoneforservicesandsuppliesfurnished under its charity care policy. The following informationmeasures the level ofcharitycareprovidedduringtheyearendedJune30:

2013Chargesforegone,basedonestablishedrates $ 1,053,561Estimatedcostsandexpensesincurredtoprovidecharitycare 874,982Equivalentpercentageofcharitycarechargesforegoneto

totalgrossrevenue 2% NOTE11. MALPRACTICEINSURANCEAs a University Research Park and Economic Development Act (URPEDA) corporation,UNM Sandoval RegionalMedical Center, Inc. enjoys immunity from suit for tort liabilityexcept as set forth in theNewMexicoTortClaimsAct (NMTCA). In this connection, theNewMexicoLegislaturewaivedtheState’sandtheUNMSandovalRegionalMedicalCenter,Inc. sovereign immunity for claims arising out of negligence out of the operation of itsMedicalCenter,thetreatmentoftheMedicalCenter’spatients,andthehealthcareservicesprovided by UNM Sandoval Regional Medical Center, Inc. employees. Additionally,consistent with the URPEDA, UNM Sandoval Regional Medical Center, Inc., elected topurchaseitsmedicalmalpractice,professionalandgeneralliabilitycoveragefromtheRiskManagementDivisionoftheStateofNewMexicoGeneralServicesDepartment(RMD),whoadministersthePublicLiabilityFundestablishedundertheNMTCA.TheNMTCAlimits,asanintegralpartofthiswaiverofimmunity,theamountofdamagesthatcanbeassessedagainstUNMSandovalRegionalMedicalCenter,Inc.onanytortclaimincluding medical malpractice, professional or general liability claims. The NMTCAprovides that total liability for all claims that arise out of a single occurrence shall notexceed$700,000setforthasfollows:(a)$200,000forrealproperty;(b)upto$300,000forpast and futuremedical andmedically relatedexpenses; and (c)up to$400,000 forpastandfuturenoneconomiclosses(suchaspainandsuffering)incurredortobeincurredbytheclaimant. While the languageof theNMTCAdoesnotexpresslyprovide forclaimsof


40

NOTE11. MALPRACTICEINSURANCE(CONTINUED)lossofconsortium,NewMexicoappellatecourtdecisionshaveallowedclaimants toseekconsortium. As a result, if loss of consortium claims is presented, those claims cannotexceed$350,000 in theaggregate. Thus, if a claimpresentsbothdirect claimsand thirdparty claims, the maximum exposure of the Public Liability Fund and, therefore, UNMSandovalRegionalMedicalCenter, Inc., cannotexceed$1,050,000. TheNMTCAprohibitsthe award of punitive or exemplary damages against UNM Sandoval Regional MedicalCenter,Inc.TheURPEDAauthorizesURPEDAcorporationstoobtaintheirliabilitycoveragesfromRMDfor thosetortswheretheLegislaturehaswaivedtheState’s immunityuptothedamageslimits of theNMTCA, as described above, plus the cost incurred in defending any claimsand/orlawsuits(includingattorney’sfeesandexpenses),withnodeductibleandwithnoself‐insuredretentionbyUNMSandovalRegionalMedicalCenter,Inc.Asstatedpreviously,UNMSandovalRegionalMedicalCenter,Inc.,didelecttopurchase,anddidinfactpurchase,itsmedicalmalpractice,professionalandgeneralliabilitycoveragefromRMD.Asaresultof this, UNM Sandoval Regional Medical Center, Inc. is fully covered for claims and/orlawsuits relating tomedicalmalpractice or professional liability occurring at itsMedicalCenter.NOTE12. RELATEDPARTYTRANSACTIONSTheMedical Center provides professional services to UNM and other entities associatedwithUNM.TheMedicalCenterbilledthefollowingamounts,includedaseitherrevenueoras an expense reduction in the accompanying statements of revenues, expenses, andchangesinnetposition,forservicesrenderedduringtheyearsendedJune30:

2013 2012

UNMHospital 836,082$ ‐UNMDepartmentofOrthopaedics 1,119 ‐

837,201$ ‐


41

NOTE12. RELATEDPARTYTRANSACTIONS(CONTINUED)The Medical Center reimburses UNM Hospital and UNM Medical Group for primarilyprofessionalserviceincurredonbehalfoftheMedicalCenter.TheMedicalCenterincurredexpenses, included in total expenses in the accompanying statements of revenues,expenses, and changes in net position, related to the following entities during the yearsendedJune30:

2013 2012

UNMHospital 776,725$ 297,526$UNMMedicalGroup 596,950 3,619,974

1,373,675$ 3,917,500$

Additionally,UNMMGextendedfundstotheMedicalCenterforthefundingoftheNegativeArbitrageAccount fund as required by the bond rating agencies. UNMMG advanced theMedicalCenter$10,125,000inNovemberof2010.DuringyearsendedJune30,2013,2012and2011theMedicalCenterrepaid$2,600,000,$3,800,000,and$1,685,000,respectively.As the required funds balance is recalculated every six months, up until the finalendorsementfromHUD,allfundsauthorizedtobereleasedareremittedtoUNMMG.UNMandtheMedicalCenterhaveentered intoaGroundLeaseunderwhich theMedicalCenter will lease approximately 18.4 acres of land from the UNM. The Ground leaseprovides for rent of $1.00 per year for the primary and extended terms of the GroundLease.TheGroundLeasefurtherprovidesthattheprimarytermoftheGroundLeasewillbe fora termof74yearsandgrants theMedicalCenter theoption torenewtheGroundLeaseforanextendedtermof25years.


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NOTE13. RESTATEMENTFORADOPTIONOFGASBSTATEMENTNO.65EffectiveJuly1,2012,theMedicalCenteradoptedGASBstatementNo.65,whichrequiredbondissuancecoststobeexpensedthrougharestatementofnetpositionasoftheearliestperiodpresented. Accordingly, theMedicalCenterhas restatednetpositionasof July1,2011 to remove bond issuance costs as of that date and to also remove the previouslyreportedamortizationofbondissuancecostsinthe2012statementofrevenues,expenses,andchanges innetposition. The followingsummarizes the impactof therestatement topreviouslyreportedbalances:

2012as 2012Previously asReported Restated

2012StatementofRevenues,ExpensesandChangesinNetPosition

Amortizationofbondissuancecosts $ 214,246 ‐Netnon‐operatingrevenues (4,067,925) (3,853,679)Decreaseinnetposition (10,419,935) (10,200,689)Netposition,beginningofyear 46,837,207 43,217,575

2012StatementofNetPositionBondissuancecosts 3,405,386 ‐Totalnetposition 36,422,272 33,016,886

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REPORTOFINDEPENDENTAUDITORSONINTERNALCONTROLOVERFINANCIALREPORTINGANDONCOMPLIANCEANDOTHERMATTERS

BASEDONANAUDITOFFINANCIALSTATEMENTSPERFORMEDINACCORDANCEWITHGOVERNMENTAUDITINGSTANDARDS

TheBoardofDirectorsUNMSandovalRegionalMedicalCenter,Inc. andMr.HectorBalderas,StateAuditorWehaveaudited, inaccordancewiththeauditingstandardsgenerallyacceptedintheUnitedStatesofAmerica and the standards applicable to financial audits contained inGovernmentAuditingStandardsissuedby theComptrollerGeneralof theUnitedStates, the financial statementsof SandovalRegionalMedical Center, Inc. (SRMC) as of and for the year ended June30, 2013, and the relatednotes to thefinancialstatements,whichcollectivelycompriseSRMC’sbasicfinancialstatements,andhaveissuedourreportthereondatedOctober18,2013.InternalControlOverFinancialReporting

Inplanningandperformingourauditofthefinancialstatements,weconsideredSRMC’sinternalcontroloverfinancialreporting(internalcontrol)todeterminetheauditproceduresthatareappropriateinthecircumstances for the purpose of expressing our opinion on the financial statements, but not for thepurposeofexpressinganopinionontheeffectivenessofSRMC’sinternalcontrol.Accordingly,wedonotexpressanopinionontheeffectivenessofSRMC’sinternalcontrol.A deficiency in internal control exists when the design or operation of a control does not allowmanagementoremployees,inthenormalcourseofperformingtheirassignedfunctions,toprevent,ordetect and correct, misstatements on a timely basis. A material weakness is a deficiency, or acombinationofdeficiencies,ininternalcontrolsuchthatthereisareasonablepossibilitythatamaterialmisstatementoftheentity'sfinancialstatementswillnotbeprevented,ordetectedandcorrected,onatimelybasis.Asignificantdeficiencyisadeficiency,oracombinationofdeficiencies,ininternalcontrolthatislessseverethanamaterialweakness,yetimportantenoughtomeritattentionbythosechargedwithgovernance.

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TheBoardofDirectorsUNMSandovalRegionalMedicalCenter,Inc. andMr.HectorBalderas,StateAuditorOurconsiderationofinternalcontrolwasforthelimitedpurposedescribedinthefirstparagraphofthissection and was not designed to identify all deficiencies in internal control that might be materialweaknessesorsignificantdeficiencies.Giventheselimitations,duringourauditwedidnotidentifyanydeficiencies in internal control that we consider to be material weaknesses. However, materialweaknessesmayexistthathavenotbeenidentified.ComplianceandOtherMatters

As part of obtaining reasonable assurance about whether SRMC’s financial statements are free frommaterial misstatement, we performed tests of its compliance with certain provisions of laws,regulations, contracts, and grant agreements, noncompliance with which could have a direct andmaterialeffectonthedeterminationoffinancialstatementamounts.However,providinganopiniononcompliancewiththoseprovisionswasnotanobjectiveofourauditand,accordingly,wedonotexpresssuchanopinion.Theresultsofourtestsdisclosedaninstanceofnoncomplianceorothermatterthatisrequired to be reported under Government Auditing Standards and which is described in theaccompanyingscheduleoffindingsandresponsesasitem13‐01.PurposeofthisReport

The purpose of this report is solely to describe the scope of our testing of internal control andcompliance and the results of that testing, and not to provide an opinion on the effectiveness of theentity’s internal control or on compliance. This report is an integral part of an audit performed inaccordance with Government Auditing Standards in considering the entity’s internal control andcompliance.Accordingly,thiscommunicationisnotsuitableforanyotherpurpose.

Albuquerque,NewMexicoOctober18,2013

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)SCHEDULEOFFINDINGSANDRESPONSESJUNE30,201313‐01EquipmentandRealPropertyManagement(OtherMatter)Condition: We noted that the Medical Center is still in the process of placingidentification numbers on fixed assets and a complete physical inventory has notbeenperformed.Criteria:Anadequatelydesignedand implemented systemof internal controlsoverequipment and real property includes the conduct of periodic observations ofequipment, and the proper reconciliation and adjustment of inventory records toreflectcountsandthephysicalconditionoftheequipment.Effect: The lack of identification numbers for the assets, as well as the lack of aphysical inventory, poses the risk that the Medical Center’s records of assets areinaccurate, and that misappropriation of equipment is not timely identified andinvestigated.Cause: Internal controls over labeling and inventorying fixed assets had not beenimplementedasofJune30,2013.Recommendation: We recommend that the Medical Center complete the physicalinventory and labeling of fixed assets according to funding source, ensuring thoseassets purchased with the FHA‐insured mortgage loan proceeds are separatelytracked for reporting to the U.S. Department of Housing and Urban Development.Additionally,theannualphysicalinventoryshouldbereconciledtothecapitalassetsmodule.Management Response: During July 2013, management established a process toconductthephysicalinventoryandlabelthefixedassets.TheMedicalCenterplanstohave the physical inventorying and labeling of assets completed by mid‐October2013.

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)SUMMARYSCHEDULEOFPRIORYEARAUDITFINDINGSYearEndedJune30,2013PriorYearAuditFinding:

12‐01–CapitalizationofInterest(MaterialWeakness)ThefindinghasbeenresolvedasofJune30,2013.

12‐02 –Cutoff of Accounts Payable and Accrued Liabilities (SignificantDeficiency)ThefindinghasbeenresolvedasofJune30,2013.

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UNMSANDOVALREGIONALMEDICALCENTER,INC.(ACOMPONENTUNITOFTHEUNIVERSITYOFNEWMEXICO)EXITCONFERENCEJUNE30,2013AnexitconferencewasconductedonOctober10,2013,withmembersoftheboardofdirectorsandmembersofSRMCmanagement. Duringthismeeting, thecontentsofthis report were discussed with the following board members, managementpersonnel,andMossAdamsLLPrepresentativespresent:SteveMcKernan BoardMember

DickMason BoardMember

ThomasWilliams BoardMember

KevinRogols PresidentandChiefExecutiveOfficer

EllaWatt ChiefFinancialOfficer,UNMHealthSystem

JaimeSilva‐Steele InterimCOO,SandovalRegionalMedicalCenter

EricaHamilton VicePresidentofPatientServices

RosalynNguyen AssistantUniversityCounsel

DarleneFernandez InterimExecutiveDirectorofFinance

TonyOgburn CMO,SandovalRegionalMedicalCenter

PurviMody ExecutiveDirectorofComplianceandAudit

AvaLovell SeniorExecutiveOfficerforFinanceandAdministration,UNM

HSC

BrandonFryar EngagementPartner,MossAdamsLLP

SandySchwank Manager,MossAdamsLLP

SRMC’s management prepared the financial statements and is responsible for thecontents.

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