From the CFO: Due to, due from

17 Apr 2016

By: James Parr, chief financial officer

 

If you are an avid reader of our financial statements (and who isn’t?), you may notice a new line item called "due to/due from.” As part of our affiliation with OHSU, sometimes we will send a payment to OHSU, and at other times we will receive a payment from them. Let me explain why.

When we affiliated, OHSU and Salem Health agreed to combine their bottom lines, believing that we can both be more financially successful together in the future than apart. In other words, we pool our income and then divide the total fairly between the two organizations.

What exactly does “fairly” mean? Imagine you start a lemonade stand with your friend. You invest $20 to help purchase the start-up supplies, he invests $80. Based on this initial investment, future profits will be divided 20 percent to you, 80 percent to your friend.

The way we divide the shared bottom line is similar. When we affiliated, we looked at the average operating margins (another way of saying profit) of both organizations over the last six years. Based on the value each organization brought into the affiliation, 19 percent of the shared bottom line comes to Salem Health, 81 percent to OHSU.

Depending on who had a good quarter, sometimes there will be a payment from one organization to the other in order to maintain this 19 to 81 balance.

The goal is to grow the overall income statement, so both organizations are dividing a bigger pie. Our affiliation creates opportunities to scale and flex our operations to increase profit for both organizations. It also provides both organizations greater stability. In other words, it is a good thing for Salem Health and OHSU and part of how we are better together.