Standard & Poor’s Update

August 2005

2

Agenda

UCSF Overview

Strategic Plan and FY 2006 Operations Workplan

Financial Performance

Long Range Development Plan

Summary and Conclusions

Appendix: University of California Support

3

UCSF Overview

4

UCSF Medical Center has a proven track record of healthcare excellence

San Francisco's only university medical center.

Two hospital locations with 574 available beds (650 licensed) including

513 at Moffitt/Long and 61 at Mt. Zion as of June 30, 2005

37% percent of patients live in San Francisco; 63% percent come from

neighboring counties, throughout California, and around the world1

Principal teaching site for UCSF Schools of Medicine, Dentistry,

Pharmacy, and Nursing as well as the UCSF Graduate Division

FY 2005 included 167,822 patient days – an ADC of 460

Footnote: 1. http://www.ucsfhealth.org/common/annualReport2004.pdf.

5

UCSF Medical Center and UCSF Children’s Hospital are recognized throughout the world as leaders in Healthcare

UCSF continues to maintain an outstanding national and international

reputation1:

– nationally designated Comprehensive Cancer Center

– nationally designated Centers of Excellence in women’s health

– among the top five hospitals in the nation in the area of neurology and

neurosurgery

– one of the nation’s largest centers for kidney and liver transplants – performing

the third largest number of transplants in the US in 20032

– internationally recognized for treating the spine

UCSF Children’s Hospital is a “hospital within a hospital” with more than

150 pediatric specialists practicing in more than 50 areas of medicine2

In 2004, UCSF MC received the equivalent of a perfect score from the

Joint Commission on Accreditation of Healthcare Organization (JACHO).

Only 17 percent of hospitals received accreditations with full standards

compliance in 20032.

UCSF Faculty leaders in Patient Safety (100,000 Lives Campaign)

Footnote: 1. http:/www.ucsfhealth.org/adult/about/index.html.

2.http://www.ucsfhealth.org/common/annualReport2004.pdf.

6

UCSF Medical Center and UCSF Children’s Hospital have been named to U.S. News & World Report’s honor roll

• Hormonal disorders

• Neurology and Neurosurgery

• Pediatrics

• Respiratory disorders

• Digestive Disorders

• Ophthalmology

Footnote: 1. All rankings from US News and World Report July 18, 2005 issue; http://www.usnews.com/usnews/health/best-hospitals/honorroll.htm.

• Rheumatology

• Kidney Disease

• Ear, Nose and Throat

• Urology

• Psychiatry

• Gynecology

UCSF Hospital is ranked in the top 10 hospitals in the country

UCSF Children’s Hospital is ranked in the top 20 hospitals in the

country

Several of UCSF’s programs were also rated among the top 15 in the

nation.

7

UCSF is a leader a national leader in NIH funding and is making significant investments in research facilities

UCSF was the fourth largest recipient of National Institutes of Health (NIH)

research funds in 2004, receiving 977 research awards valued at $439

million1

Development of the new research campus at Mission Bay is underway2:

– Genentech Hall, The California Institute for Quantitative Biomedical Research

(QB3) and The Arthur and Toni Rembe Rock Hall , a research facility for

Genetics, Development and Behavioral Sciences are completed and occupied

– The Campus Community Center, Housing Complex and two parking structures

will be completed in FY 2006

– Construction on The Helen Diller Family Cancer Research Building is slated to

begin in FY06.

– The Cardiovascular and Neurosciences research buildings are in the design

phase.

Footnote: 1. http://grants2.nih.gov/grants/award/trendsrnk04all1to500.htm.

2. http://pub.ucsf.edu/missionbay.

8

UCSF is well positioned for the the future

Strong execution of the current strategic plan

Strong volume growth

Strong financial performance

Strong commitment to the future plan

Footnote: 1. http://grants2.nih.gov/grants/award/trendsrnk04all1to500.htm

2. http://pub.ucsf.edu/missionbay

9

Strategic Plan and FY 2006 Operations Workplan

10

Our strategic plan for has six main goals…

Create Capacity for targeted, profitable growth

Grow targeted services

Plan for the development of a Mothers’ and Children’s Hospital

Raise customer service/satisfaction to match recognized excellence of

clinical care and research

Target initiatives to improve operating performance, monitoring and

management

Launch enterprise-wide workforce development initiative

11

…the operations workplan for FY 2006 is tied to the Medical Center’s strategy

12

Financial Performance

13

Financial results significantly improved from 2003 to 2004 …and are even stronger in 2005

FY 2005 income before other changes in net assets of $69.3 million, $13.8

million ahead of FY 2004

Cash increased from $115.5 million at June 2004 to $144.2 million at June

2005. Days Cash on Hand increased from 44.2 to 51.3

Net Days in AR increased slightly from 64.8 days at June 2004 to 66.6

days at June 2005

14

The results over the past five years indicate sustained financial improvement…

UCSF Medical CenterNet Income - Combined

FY 2000 through FY 20051

tho

usa

nd

s

$23,409

$69,271

($25,000)

$21,842

($10,000)

$25,099

$35,022

$48,412

($16,850)

($14,871)

$55,477

($60,000)

($70,000)

($40,000)

($10,000)

$20,000

$50,000

$80,000

April-June 00 FY 2001 FY 2002 FY 2003 FY 2004 FY 2005

Budget Actual Annualized

Footnote: 1. FY 2005 financial performance is based on the unaudited financial statements while all previous periods are based on audited financial statements.

15

…as Net Income has improved so too has cash

UCSF Medical Center Cash Balance1

July 2002 – June 2005

Footnote: 1. Includes restricted and unrestricted cash.

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

'Sep-02 'Dec-02 'Mar-03 'J un-03 'Sep-03 'Dec-03 'Mar-04 'J un-04 'Sep-04 'Dec-04 'Mar-05 'J un-05

Th

ou

san

ds

16

This improved performance has resulted in stronger financial ratios

Footnote: 1. Standard & Poor’s U.S. Not-For-Profit Health Care 2004 Median Ratios; publication date 10-Jun-2004.

2. MADSC is Maximum Annual Debt Service Coverage.

3. FY 2005 financial performance is based on the unaudited financial statements.

A FY 2003 FY 2004 FY 2005

Net patient revenue 198,145$ 953,897$ 1,041,496$ 1,123,762$ Operating margin 2.0% 5.2% 5.8% 6.3%EBIDA margin 11.1% 10.7% 10.6% 11.0%

MADSC2 3.3 8.1 7.2 7.9 Debt to capitalization 36.1% 34.1% 21.2% 20.2%

Days cash on hand 176.0 35.8 44.2 51.3 Cushion ratio 12.5 6.6 7.3 8.9

Days in A/R 57.4 66.1 64.8 66.0

S&P UCSF Medical Center

Ratios/Indicators1,3

17

Trended Service Data Fiscal Years 2002 to 2005

Volume in the Medical Center’s key Service Lines continue to grow…

Footnote: 1. Excludes Well baby days

MAJOR SERVICE & AGE GROUPING

Cases 2002

Cases 2003

Cases 2004

Cases 2005

Days 2002

Days 2003

Days 2004

Days 2005

Adult (18 and over) Medical/Surgical

Cardiovascular Services 3,134 3,166 3,176 3,289 16,007 17,656 18,906 19,172

Neurosciences 2,685 2,863 2,992 3,140 14,559 16,797 19,146 19,847

Cancer Services 2,394 2,534 2,552 2,570 17,910 20,131 20,633 19,061

Orthopedic Surgery 1,361 1,366 1,501 1,589 7,757 7,292 7,856 9,637

Kidney/Liver Transplant 1,285 1,572 1,623 1,719 11,454 9,417 10,443 11,555

Adult General Surgery 1,730 1,822 1,959 2,554 11,324 12,392 11,948 13,527

Medicine 4,422 4,645 4,597 4,879 21,094 23,130 24,611 26,242

Other Surgery 342 331 424 478 1,517 1,386 1,895 2,390

17,355 18,301 18,824 20,218 101,620 108,201 115,438 121,431

Mother's and Children's (17 and under)

Obstetrics1 2,256 2,198 2,116 2,084 8,097 7,762 7,342 7,330

Neonatology 657 681 596 536 15,212 14,152 12,340 11,778

Pediatric Medicine 2,602 2,686 2,785 2,929 17,649 18,409 18,969 19,270

Pediatric Surgery 1,284 1,284 1,222 1,182 7,637 8,088 7,944 8,013

6,797 6,848 6,719 6,731 48,596 48,411 46,596 46,391

UCSF Grand Total 24,152 25,149 25,543 26,949 150,216 156,612 162,034 167,822

ADC 412 429 443 460

Annual percent increase 3.3% 4.1% 3.3% 3.8%

Sub Total Mother's & Children's

Sub Total Adult Medical/Surgical

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…resulting in a 15% increase in the Medical Center’s average daily census

UCSF Medical CenterAverage Daily Census

FY 2001 through FY 2005

Ave

rag

e D

aily

Ce

ns

us

399

412

429

443

460

375

400

425

450

475

FY 2001 FY 2002 FY 2003 FY 2004 FY 2005

19

UCSF Medical CenterStatements of Revenue, Expenses and Net IncomeFor the Years ended June 30, 2003, 2004 and 20051

(Dollars in thousands)

Net income continues to grow

Hospital 2003 2004 2005

Net Patient Service Revenue 803,512$ 829,196$ 898,796$ Other Revenue 31,550 23,792 25,013

Total Revenue 835,062 852,988 923,809

Expenses 719,424 740,719 795,495 Depreciation 49,277 48,885 50,823 Interest 8,101 8,027 6,575

Total Expenses 776,802 797,631 852,893

Hospital Income 58,260 55,357 70,916

Clinical PracticesNet Patient Service Revenue 191,303 212,300 224,966 Other Revenue 5,202 6,233 4,584

Total Revenue 196,505 218,533 229,550

Expenses 205,961 217,962 230,584 Depreciation 392 451 611 Interest - - -

Total Expenses 206,353 218,413 231,195

Clinical Practices Income (9,848) 120 (1,645)

Net Income 48,412$ 55,477$ 69,271$

Footnote: 1. FY 2005 financial performance is based on the unaudited financial statements while all previous periods are based on audited financial statements.

20

The balance sheet has improved…

UCSF Medical CenterStatements of Net Assets

For the Years ended June 30, 2003, 2004 and 20051

(Dollars in thousands)2003 2004 2005

AssetsCurrent Assets

Cash 86,708$ 115,506$ 144,248$ Accounts Receivable 174,262 185,575 203,246 Third Party Settlements 1,642 1,330 4,604 Inventories 14,411 18,519 17,699 Other Current Assets 7,748 8,634 10,543

Total Current Assets 284,771 329,564 380,340

Property, Plant and Equipment 358,594 385,900 415,640 Other Assets 15,759 11,048 11,295

Total Assets 659,124 726,512 807,275

Liabilities and Net AssetsCurrent Liabilities

Accounts Payable & Accrued Expenses 76,784 85,838 102,200 Other Current Liabilities 5,109 7,992 4,520 Current Portion of Long-term Debt 7,776 9,544 12,492

Total Current Liabilities 89,669 103,374 119,212

Long-Term Debt, net of current portion 110,522 117,776 121,812 Third Party Settlements and Loss Contingency 55,303 59,650 78,970 Note Payable to UC 61,042 - -

Total Liabilities 316,536 280,800 319,994

Net Assets 342,588 445,712 487,281

Total Liabilities and Net Assets 659,124$ 726,512$ 807,275$

Footnote: 1. FY 2005 financial performance is based on the unaudited financial statements while all previous periods are based on audited financial statements.

21

UCSF Medical CenterStatements of Cash Flows

For the Years ended June 30, 2003, 2004 and 20051

(Dollars in thousands)

…as too has the cash balance

2003 2004 2005Sources of Cash:Income 48,412$ 55,477$ 69,271$ Depreciation 49,669 49,336 51,434 Donated Funds 7,888 8,300 5,327 Other 10,902 9,114 17,833 Long-Term Debt Proceeds 15,847 18,084 18,376

Total Sources of Cash 132,718 140,311 162,241

Uses of Cash:Changes in Working Capital (31,049) (2,290) (6,196) Capital Expenditures (46,826) (78,466) (82,882) Health Systems Support (10,291) (21,695) (33,029) Long-Term Debt Principal Payments (8,144) (9,062) (11,392)

Total Uses of Cash (96,310) (111,513) (133,499)

Change in Cash 36,408 28,798 28,742

Cash Balance, beginning of period 50,300 86,708 115,506

Cash Balance, end of period 86,708$ 115,506$ 144,248$

Footnote: 1. FY 2005 financial performance is based on the unaudited financial statements while all previous periods are based on audited financial statements.

22

Continued operational and financial success secures capital funding of the current campuses

UCSF Medical CenterEstimated Capital Expenditure

For the Years ended June 30, 2006, 2007 and 2008(Dollars in thousands)

2006 2007 2008Capital ExpendituresEquipment 25,780$ 26,000$ 31,000$ Clinical Information Systems 9,618 4,000 4,000 Construction 37,260 27,094 41,493 Bed Projects 7,398 27,784 12,507 Total Capital Expenditures 80,056$ 84,878$ 89,000$

Funding SourceEquity 77,056$ 81,878$ 86,000$ Philanthropy 3,000 3,000 3,000 Total Funding Source 80,056$ 84,878$ 89,000$

23

508

535 535

552

574

597

618

646

662

399412

429

443

460 465

485

506

525

375

425

475

525

575

625

675

725

2001 2002 2003 2004 2005 2006 2007 2008 2009

Available Beds Average Daily Census

Bed capacity will expand over the next three years

Bed Capacity & Census ProjectionFY2001 – FY2009

Long 1 10 Observation beds

MZ -- West Wing15 Med/Surg beds

Long 9 6 Med/Surg beds

Long 13 32 Med/Surg beds

Moffitt 14 N&E1

16 ICU beds

Moffitt 13 N&E 16 ICU beds

MZ East Wing 13 Med/Surg beds

Close Moffitt 14 N&E1

20 beds

Footnote: 1. Moffitt 14 N & E currently has 20 med/surg beds. In FY2008, these beds will be taken offline and replaced and re-opened with 16 ICU beds. 2. All year ending periods are June 30 th. Projection years start with FY2006 3. Increases in bed capacity between 2001 and 2005 have been accomplished through the opening of beds at Mt. Zion

Completed Projects Planned Projects

24

Long Range Development Plan

25

Seismic requirements and capacity needs must be addressed…

The Need:

– Seismic requirements (SB 1953)

• Repair Moffitt/Long by 2008

• Repair or replace Mount Zion by 2013 (OSHPD extension received).

– Increase capacity and improve functionality of hospitals

The Process:

– Joint School of Medicine and Medical Center effort

– Objective: Highly functional hospital for patients and physicians

– Objective: Link hospital services to academic programs.

26

…however current configuration and construction costs are constraints to UCSF’s growth

Constraints:

– All land is encumbered:

• Parnassus: space ceiling, access; parking

• Mount Zion: small campus; limited research space

• Mission Bay: new land is expensive and carries obligations to Redevelopment Agency.

– Community opinion: keep Emergency Department (and related hospital) on

Parnassus Heights.

– Finances: all options are expensive.

– Timing/Phasing: all options must assure uninterrupted patient care – requires

“decant” of existing volume to new facilities.

27

UCSF’s long term development plan is a bold redesign of the Medical Center’s facilities and delivery system

Programmatic Options

• Separate Cancer Hospital

• Separate Women’s and Children’s Hospital

• Separate specialty surgery hospital

Facility Options (over the next decade):

• Ambulatory Care Center at Mission Bay; new small hospital at Mission Bay;

new tower on Parnassus; maintain ambulatory care at Mount Zion.

• Ambulatory Care Center at Mission Bay; new small hospital at Mount Zion;

new tower on Parnassus.

28

Summary and Conclusions

29

UCSF has the key “Building Blocks” for long term success

Commitment to Mission, Vision, Values

Tradition of Medical Excellence – focus on safety and quality

World class faculty physicians

Excellent Senior Management team

Clear Strategic Plan and ability to execute Operations Workplan

Shared goals for all staff

Market and contracting strength

Strong Relationship with top Medical School

Strong UC and political support

30

Appendix – University of California Support

31

Regents’ Hospital Working Capital Program

• In 1989, The Regents implemented internal hospital working capital facility using Short Term Investment Pool (STIP):

• Maximum total outstanding for hospitals - 15% of unrestricted STIP.

• Maximum individual hospital outstanding - 60% of hospital gross accounts receivable.

• Can be drawn for any working capital purpose, including debt service.

32

UCSF Medical Center Available Cash from Hospital Working Capital Program

• Availability of UC Working Capital based on A/R as of June 2005:

60% X $ 258 Million Gross A/R:

= $154.7 Million

= 55 Days of Cash

• Historical Debt Service Coverage, June 2005 = 7.1 X

• Adjusted for Hospital Working Capital, June 2005 adjusted debt service

coverage = 15.7 X