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Note 6

Notes 7 - 14


NOTES 7-14

NOTE 7: Retirement Plans

Employees 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 plan.

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.

NOTE 8: Postemployment Benefits Other Than Pension Benefits

The 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).

NOTE 9: Self-Insurance

All 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, respectively.

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.

NOTE 10: Funds Held in Trust By Others

Assets 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):


2001
2000
Market Value of Funds Held by Trustees for the Benefit of the University
$134,414
$142,991
Income Received from Funds Held by Trustees for the Benefit of the University
$5,636
$5,497

NOTE 11: Pledges

Outstanding 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.

NOTE 12: Commitments and Contingencies

Contractual commitments

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:

2001-02
$6,583,683
2002-03
4,564,861
2003-04
3,219,706
2004-05
2,945,529
2005-06
575,011
2006-07
7,779,941


The 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.

Litigation

The 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 financial position.

Settlements

During 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.

NOTE 13: Direct Lending

The 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 lending.

NOTE 14: Subsequent Events

Community 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.

IDX Refund

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 2002.

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.


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