Partners HealthCare System, Inc. and Affiliates

Partners HealthCare

System, Inc. and Affiliates

Report on Federal Awards in Accordance with OMB Circular A-133 September 30, 2015 EIN 04-3230035

Partners HealthCare System, Inc. and Affiliates

Report on Federal Awards in Accordance with OMB Circular A-133 Index September 30, 2015

Page(s)

Part I - Financial Statements

Independent Auditor's Report .................................................................................................................. 1?2

Consolidated Financial Statements and Notes to Consolidated Financial Statements ......................... 3?48

Schedule of Expenditures of Federal Awards and Notes to Schedule of Expenditures of Federal Awards .......................................................................................................... 49?76

Part II - Reports on Compliance and Internal Controls

Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards .......................................................................... 77?78

Independent Auditor's Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133.......................................79?80

Part III - Federal Award Findings and Questioned Costs

Schedule of Findings and Questioned Costs.............................................................................................81

Summary of Status of Prior Year Findings.................................................................................................82

Part I Financial Statements

Independent Auditor's Report

To the Board of Directors of Partners HealthCare System, Inc. and Affiliates

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of Partners HealthCare System, Inc. and Affiliates (Partners HealthCare), which comprise the consolidated balance sheets as of September 30, 2015 and 2014, and the related consolidated statements of operations, changes in net assets and of cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

PricewaterhouseCoopers LLP, 101 Seaport Blvd., Boston, MA 02210 T: (617) 530 5000, F: (617) 530 5001, us

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Partners HealthCare as of September 30, 2015 and 2014, and the results of their operations, their changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matters

Other Information

Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated, in all material respects, in relation to the consolidated financial statements as a whole.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated December 11, 2015 on our consideration of Partners HealthCare's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Partners HealthCare's internal control over financial reporting and compliance.

December 11, 2015

2

Partners HealthCare System, Inc. and Affiliates

Consolidated Balance Sheets September 30, 2015 and 2014

(in thousands of dollars)

Assets Current assets

Cash and equivalents Investments Current portion of investments limited as to use Patient accounts receivable, net of allowance for bad debts (2015 - $112,630; 2014 - $117,212) Research grants receivable Other current assets Receivable for settlements with third-party payers

Total current assets

Investments limited as to use, less current portion Long-term investments Pledges receivable, net and contributions receivable from trusts, less current portion Property and equipment, net Other assets

Total assets

Liabilities and Net Assets Current liabilities

Current portion of long-term obligations Accounts payable and accrued expenses Accrued medical claims and related expenses Accrued compensation and benefits Current portion of accrual for settlements with third-party payers Unexpended funds on research grants

Total current liabilities

Accrual for settlements with third-party payers, less current portion Accrued professional liability Accrued employee benefits Interest rate swaps liability Accrued other Long-term obligations, less current portion

Total liabilities

Commitments and contingencies

Net assets Unrestricted Temporarily restricted Permanently restricted

Total net assets

Total liabilities and net assets

2015

2014

$ 621,568 $ 457,244

1,354,636

1,474,058

1,590,203

2,120,057

878,033 121,775 447,188

60,374

5,073,777

2,832,744 1,061,176

876,214 115,786 381,517

39,082

5,463,958

2,927,360 1,026,538

209,064 5,328,782

564,898

$ 15,070,441

197,975 4,615,908

499,353

$ 14,731,092

$ 398,990 $ 238,204

646,355

645,999

232,268

254,480

710,929

677,957

53,066

55,918

202,137

183,222

2,243,745

2,055,780

34,725 482,640 1,705,287 404,062 153,146 3,994,034

58,899 455,463 1,066,840 295,656 157,029 3,697,938

9,017,639

7,787,605

4,707,662 765,562 579,578

6,052,802

$ 15,070,441

5,623,759 855,954 463,774

6,943,487

$ 14,731,092

The accompanying notes are an integral part of these consolidated financial statements. 3

Partners HealthCare System, Inc. and Affiliates

Consolidated Statements of Operations Years Ended September 30, 2015 and 2014

(in thousands of dollars)

Operating revenue Net patient service revenue, net of provision for bad debts (2015 - $129,051; 2014 - $129,492) Premium revenue Direct academic and research revenue Indirect academic and research revenue Other revenue

Total operating revenue

Operating expenses Employee compensation and benefit expenses Supplies and other expenses Medical claims and related expenses Direct academic and research expenses Depreciation and amortization expenses Interest expense

Total operating expenses

Income (loss) from operations

Nonoperating gains (expenses) (Loss) income from investments Change in fair value of interest rate swaps Gifts and other, net of fundraising and other expenses Academic and research gifts, net of expenses

Total nonoperating gains (expenses), net

(Deficit) excess of revenues over expenses

Other changes in net assets Change in net unrealized appreciation on marketable investments Change in fair value of hedging interest rate swaps Funds utilized for property and equipment Change in funded status of defined benefit plans Other

Decrease in unrestricted net assets

2015

2014

$ 7,317,918 2,034,420 1,316,283 354,942 642,082

11,665,645

$ 7,042,558 1,622,392 1,225,782 352,911 662,410

10,906,053

5,655,073 2,325,085 1,652,538 1,316,283

493,505 116,703

11,559,187

106,458

5,428,352 2,226,663 1,463,972 1,225,782

463,039 119,849

10,927,657

(21,604)

(37,258) (110,315)

(39,468) (11,406)

(198,447)

(91,989)

227,357 (109,275)

(67,242) 90,609

141,449

119,845

(224,616) -

38,288 (639,167)

1,387

(3,309) 45,624 39,058 (387,698)

5,173

$ (916,097) $ (181,307)

The accompanying notes are an integral part of these consolidated financial statements. 4

Partners HealthCare System, Inc. and Affiliates

Consolidated Statements of Changes in Net Assets Years Ended September 30, 2015 and 2014

(in thousands of dollars)

Unrestricted

Temporarily Restricted

Permanently Restricted

Total

Net assets at October 1, 2013

$ 5,805,066 $

Increases (decreases) Loss from operations Income from investments Gifts and other Academic and research gifts, net of expenses Change in net unrealized appreciation on marketable investments Change in fair value of interest rate swaps Nonhedging Hedging Funds utilized for property and equipment Change in funded status of defined benefit plans Other

(21,604) 227,357 (67,242)

90,609

(3,309)

(109,275) 45,624 39,058

(387,698) 5,173

Change in net assets

(181,307)

Net assets at September 30, 2014

5,623,759

Increases (decreases) Income from operations (Loss) income from investments Gifts and other Academic and research gifts, net of expenses Change in net unrealized appreciation on marketable investments Change in fair value of interest rate swaps Funds utilized for property and equipment Change in funded status of defined benefit plans Other

106,458 (37,258) (39,468) (11,406)

(224,616) (110,315)

38,288 (639,167)

1,387

Change in net assets

(916,097)

Net assets at September 30, 2015

$ 4,707,662 $

792,769 $

36,897 51,250

-

(11,209)

(12,814) (939) 63,185 855,954

(46,460)

8,029 -

(36,351) -

(17,151) -

1,541 (90,392) 765,562 $

412,209 $ 7,010,044

30 49,877

-

1,706

(48) 51,565

463,774

(21,604) 264,284

33,885 90,609

(12,812)

(109,275) 45,624 26,244

(387,698) 4,186

(66,557)

6,943,487

55 116,449

-

106,458 (83,663) 85,010 (11,406)

(2,313) -

1,613

(263,280) (110,315)

21,137 (639,167)

4,541

115,804

(890,685)

579,578 $ 6,052,802

The accompanying notes are an integral part of these consolidated financial statements. 5

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