7: Retirement Plans
of the University are employees of the Commonwealth. Substantially
all full-time classified salaried employees participate in a defined
benefit pension plan administered by the Virginia Retirement System
(VRS). Information relating to this plan is available at the statewide
level only in the Commonwealth of Virginia's Comprehensive
Annual Financial Report (CAFR). The Commonwealth, not the
University, has overall responsibility for contributions to this
Substantially all full-time faculty, certain administrative staff,
and Health Care Professionals participate in Faculty Optional
Retirement Plans. These are fixed-contribution plans where the
retirement benefits received are based upon the employer and employee
contributions (all of which are paid by the University), and the
interest and dividends. Individual contracts issued under the
plans for full-time faculty and certain administrative staff provide
for full and immediate vesting of both the University's and
the participant's contributions. Health Care Professionals'
employer contributions fully vest after one year of employment.
Total pension costs under the plans were approximately $30.7 million
and $27.3 million for the years ended June 30, 2001 and 2000,
respectively. Contributions to the Optional Retirement Plans were
calculated using base salaries of $301.9 million and $260.7 million
for the years ended June 30, 2001 and 2000, respectively. The
contribution percentage amounted to 10.2 percent and 10.5 percent
for the years ended June 30, 2001 and 2000, respectively.
8: Postemployment Benefits Other Than Pension Benefits
Commonwealth of Virginia participates in the VRS-administered
statewide group life insurance program, which provides postemployment
life insurance benefits to eligible retired and terminated employees.
The Commonwealth also provides health care credits against the
monthly health insurance premiums of its retirees who have at
least fifteen years of state service and participate in the state
health plan. Information related to these plans is available at
the statewide level in the Commonwealth's Comprehensive Annual
Financial Report (CAFR).
University employees have an option to participate in the University's
self-funded, comprehensive medical care benefits program. The cost
of medical care is paid out of employee and employer contributions
and is held in a separate bank account. The University has contracted
with QualChoice of Virginia of Blue Ridge Health Alliance, Inc.,
a third-party administrator, to provide administrative services
for this health care benefits program. As of June 30, 2001 and
2000, cash and investments of $19,953,000 and $18,330,000 were
in the account, respectively. The estimated liability for outstanding
claims at June 30, 2001 and 2000, was $7,513,000 and $7,846,000,
University employees are covered by a self-insured workers' compensation
benefits program administered by the Commonwealth of Virginia's
Department of Human Resources. Information relating to this plan
is available at the statewide level only in the Commonwealth of
Virginia's Comprehensive Annual Financial Report (CAFR).
The risk management insurance plans are administered by the Department
of Treasury, Division of Risk Management. Risk management insurance
includes property, boiler and machinery, crime, employee faithful
performance of duty bond, general (tort) liability, professional
liability (includes medical malpractice), aviation and watercraft
coverage, and automobile liability. The University is self-insured
for the first $100,000 of each property and boiler and machinery
loss, and for the first $20,000 of each vehicle physical damage
loss. The University also maintains excess crime and vehicle physical
damage insurance coverage.
10: Funds Held in Trust By Others
of funds held by trustees for the benefit of the University are
not reflected in the accompanying balance sheet. The University
has irrevocable rights to all or a portion of the income of these
funds, but the assets of the funds are not under the management
of the University. The following reflects the market value of
these funds as of June 30, 2001 and 2000, and the amount of income
received from the trustees during the years then ended (in thousands):
Value of Funds Held by Trustees for the Benefit of the University
Received from Funds Held by Trustees for the Benefit of the
pledges to the University amounted to $131.0 million and $99.2
million as of June 30, 2001 and 2000, respectively. Included in
these totals are $30.9 million and $19.7 million, respectively,
of pledges relating to plant construction.
In accordance with Statement No. 33 of the Governmental Accounting
Standards Board, effective for fiscal year 2001, we have recorded
$43.4 million in pledges receivable, $12.5 million of which relate
to plant construction. These are reported net of the allowance
for uncollectible pledges, which amounted to $2.3 million.
12: Commitments and Contingencies
As of June 30, 2001, the University was a party to construction
contracts and commitments totaling approximately $257.4 million
of which $194.4 million had been incurred. The University's
commitments for equipment, leases, and services are as follows:
total rental expense for all property and equipment was approximately
$9.9 million and $12.2 million for the years ended June 30, 2001
and 2000, respectively.
University is a defendant in a number of legal actions. While
the final outcome cannot be determined at this time, management
is of the opinion that the liability, if any, for these legal
actions will not have a material effect on the University's
fiscal year 2000, the Department of Justice reviewed outpatient
billings submitted to Government Payers by the University of Virginia
Health Services Foundation (HSF) and the University of Virginia
Medical Center. This review revealed a small number of billing
errors. To avoid protracted legal and operational costs, the Justice
Department, Medical Center, and HSF negotiated a tentative settlement
of this issue. The settlement will have several provisions, one
of which will be a payment to the Government of $3,000,000. Internal
controls have been implemented to prevent a recurrence of the
problems identified during the investigation.
As of June 30, 2001, the settlement had not been reached. It is
anticipated that all aspects of the settlement will be agreed
upon, and payment rendered, in the second quarter of fiscal year
2002. An additional $250,000 was accrued in fiscal year 2001 toward
settlement of the payment aspect.
13: Direct Lending
University began participating in the Federal Direct Lending Program
in July 1995. For the year ended June 30, 2001, the Current Restricted
Fund additions for federal grants and contracts of $202.8 million
and the Current Restricted Fund expenditures for scholarships
and fellowships of $102.3 million include $51.4 million for direct
lending. For the year ended June 30, 2000, the Current Restricted
Fund additions for federal grants and contracts of $191.4 million
and the Current Restricted Fund expenditures for scholarships
and fellowships of $100.0 million include $52.1 million for direct
14: Subsequent Events
Medicine University of Virginia, L.L.C.
The University, in conjunction with the Health System, felt it
was imperative to offer health care in the community that allowed
the University primary care physician providers an alternative
to the traditional model of health care delivery. This new model
gives physicians an organizational structure that allows them
the opportunity to practice independently in a virtual private
practice environment with all the risks and gains associated with
an independent model.
On November 14, 2000, the University of Virginia established the
Community Medicine University of Virginia, L.L.C. (Community Medicine).
Community Medicine was established as a limited liability corporation
(L.L.C.) under the laws of the Commonwealth of Virginia to house
physician practices. As an L.L.C., which is a wholly owned subsidiary
of the University of Virginia, Community Medicine would be considered
a disregarded entity for tax purposes. As a wholly owned subsidiary,
the financial activity of Community Medicine will be accounted
for under the consolidation method.
An initial investment of $750,000 was made to Community Medicine
in May 2001. Community Medicine commenced operations on July 1,
2001. An additional $500,000 investment was made in July 2001.
Blue Ridge Health Alliance Sale
As previously disclosed in Note 5, the Medical Center is a participant
with the Health Services Foundation (HSF) in Blue Ridge Health
Alliance, Inc. (Blue Ridge Health Alliance or the Corporation).
Blue Ridge Health Alliance, a for-profit corporation, was formed
in April 1994, to develop a regional network of physicians, hospitals,
and other health care providers through which to deliver health
benefits to insured and self-funded employers and other groups.
QualChoice of Virginia Health Plan, Inc. (QualChoice), is a wholly
owned subsidiary of the Corporation.
On August 31, 2001, Coventry Health Care, Inc., acquired Blue
Ridge Health Alliance, Inc., and its HMO subsidiary, QualChoice
of Virginia Health Plan, Inc. The transaction was accounted for
as a purchase in which Coventry paid $12.5 million. The Medical
Center recognized a loss on the sale of $3.8 million. As part
of the definitive agreement, Coventry will enter into a five-year
provider contract with Blue Ridge's current majority owners,
the University of Virginia Medical Center and the University of
Virginia Health Services Foundation.
The Medical Center and IDX Inc., one of the vendors contracted
with to provide services and equipment related to the Integrated
Health Information Management Systems (IHIMS) project, mutually
agreed to rescind portions of the original agreement. The effect
of these changes will result in IDX refunding an estimated $3.5
million to the Medical Center. While no executed agreement was
in place as of June 30, 2001, it is anticipated that all aspects
of the refund will be agreed upon, and payment rendered, in the
second quarter of fiscal year 2002.
Advance to the University
The Medical Center advanced $2,854,410 of General Funds and $2,858,395
of Specific Purpose Funds to the University's Quasi-Endowment
Fund, which was loaned to the University Real Estate Foundation
(UREF) for the construction of the Virginia Neurological Institute
building. This loan was refinanced by UREF and the advance returned
to the Medical Center on July 25, 2001.
Pending GASB Statement
Statement No. 35 of the Governmental Accounting Standards Board:
Basic Financial Statements--and Management's Discussion
and Analysis--for Public Colleges and Universities, issued
November 1999, will be effective for the University of Virginia,
including the Medical Center, for the fiscal year ending June 30,
2002. This Statement imposes new standards for financial reporting.
The titles and formats of the University's financial statements
will change significantly as a result of this Statement. In addition,
management will be required to provide a management's discussion
and analysis that gives readers an analysis of the University's
overall financial position and results of operations including
a comparison of current year results with the prior year. The
University of Virginia will assess the changes required by this
Statement and prepare for its implementation during fiscal year
The changes to the Medical Center's financial statements will
be minimal since its activity is accounted for in an enterprise
fund. However, Medical Center's management will also be required
to provide a management's discussion and analysis of their activities.
The Medical Center will be preparing for the required changes
during fiscal year 2002.