October 2003 Bulletin

Annual Report

From the Treasurer—An overview of FY 2002

Every October, the Treasurer is required to deliver a report to the membership on the previous fiscal year. This report covers the period January 1–December 31, 2002, a year filled with its share of ups and downs. Notable among the “downs” were the reduction in the Medicare fee schedule, which had a major impact on AAOS members, and the downturn in the stock market, which had a major impact on our investment portfolio. But the success of several Academy initiatives and activities helped to offset such depressing news and the year ended on a new high.

Programmatic highlights

As a follow-up to the Academy in 2005 initiative, the Board of Directors realized that a similar review was needed of staff, organizational structure/functions and issues facing nonprofit professional organizations. RSM McGladrey, Inc., was unanimously selected to conduct the review. Their report, which was presented to the Board at its May meeting, resulted in a change in the executive structure of the Academy to a Chief Executive Officer (CEO) with an executive team consisting of a Director of Medical Affairs, a Chief Operating Officer, a Chief Financial Officer, and a Chief Educational Officer. This new structure will integrate educational activities (responsible for about 55 percent of AAOS programs and revenue) with medical resources, advocacy activities and fiscal responsibility and accountability. The search for a new CEO began in October, and culminated this year with the selection of Karen Hackett, FACHE, CAE.

In the aftermath of the terrorist attack on September 11, the Fellowship approved a resolution to adopt a dues structure incorporating a 50 percent reduction in dues for Fellows serving active duty in the U.S. Army, Navy or Air Force, including military reservists who have been activated by the government at the Annual Meeting.

In March, President George W. Bush issued a Presidential Proclamation declaring the years 2002 to 2011 as the National Bone and Joint Decade. AAOS members were instrumental in convincing the President of the importance of this proclamation.

The importance of leadership was a constant theme throughout the year. The Academy implemented its Leadership Fellows Program to identify and train future Academy volunteers for committee and leadership position. To facilitate volunteer opportunities, the Academy added an online database of committee and council openings to the AAOS Web site. The addition of a lay voting member to the Board of Directors also provided a unique perspective on leadership, particularly in the area of patient safety. Leslie Altick, who assumed the position at the Annual Meeting, brought both to the table.

The Academy also proved itself a leader in the promotion of diversity, patient safety and patient education as well as in online activities. In May, the Board approved the establishment of a Diversity Award to recognize Fellows who have significantly contributed to advancing diversity in orthopaedics through recruiting, mentoring, leadership and treatment of diverse populations.

The Board also established a Patient Safety Committee and charged it with promoting orthopaedic patient safety and reducing the potential of medical errors that could occur in orthopaedic practice. In response to two high-profile recalls of hip devices, the Biomedical Engineering Committee developed an Advisory Statement on Implant Recalls that was adopted by the Board. The Advisory Statement on Wrong Site Surgery was also revised to emphasize the importance of communicating with the patient about this issue.

The same patient-safety theme appeared in the Academy’s series of public service announcements, along with three other topics: the importance of exercise for young people, the need for fall prevention programs among the elderly and the impact of research on female knee problems. Taking a humorous approach, the Academy’s “Sedentary” television spot proved a real hit, winning a number of awards and generating substantial publicity for the AAOS.

Internet-centered activities assumed greater importance as we all began to rely more heavily on e-mail, Web searches and online learning. The strategic partnership between the Academy and the Journal of Bone and Joint Surgery (JBJS) not only provided members with a free subscription to the print publication but also to eJBJS, the Journal online. Orthopaedic Knowledge Online completed its first full year of operation, by tripling its cyberspace library of orthopaedic information from eight to 24 topics. The Academy’s online CME course, “Ankle Injuries in Athletes,” won a silver medal in a national competition for the best online CME course.

The AAOS patient education Web site, Your Orthopaedic Connection, complemented these efforts. As the most visited section of the AAOS Web site, Your Orthopaedic Connection attracted nearly 10,000 visits a day and had over 2.5 million page views during the year. An new En Español section made the AAOS one of the first medical specialty societies to reach out to the Hispanic market with patient education materials. The site was also recognized for “outstanding achievement in Web site development” by the Web Marketing Association.

While AAOS Web-based activities provided millions with access to information, access to care was another matter that garnered attention. The Patient Access to Emergency Care Project Team was charged with developing a plan of strategies and resource materials to help make the federal Emergency Medical Treatment and Active Labor Act (EMTALA) and similar state laws less burdensome to orthopaedists, hospitals and other providers.

The 5.4 percent reduction in the Medicare fee schedule for physicians had a major impact on many AAOS members because Medicare patients account for nearly a quarter of the typical orthopaedic practice. The AAOS had protested this second reduction in as many years, but was unable to effect a change in policy. That came over the course of the year as the Academy continued to work with the Centers for Medicare and Medicaid Services and, as part of the Coalition for Fair Medicare Payments, to take our story to members of Congress. Our Washington office was key in identifying supportive legislators and in making connections between constituent orthopaedists, patients and legislators. The year-long efforts were successful, and a projected 4.4 percent reduction in the 2003 Medicare fee schedule turned into a 1.6 percent increase.

Combined balance sheet

Total assets of $58.9 million at year end 2002 represented a decline of approximately $1.7 million from the 2001 year-end balances. This resulted from the decline in market value of the investment portfolio on December 31 of almost $2.9 million. This decline was partially offset by an increase in prepaid assets for meetings and insurance and continued investments in property and equipment net of depreciation. Liabilities increased $900,000, which was almost entirely attributable to greater exhibitor revenue received but deferred as income for the forthcoming Annual Meeting in 2003.

Net Assets declined $3.6 million due to the operating loss during 2002 of $700,000, the investment loss of $2.3 million, and the use of $600,000 in contributions more than was received during the year.

Investments

Market losses occurred for the third consecutive year. Realized gains on the sale of investments plus interest and dividends totaled $1.0 million. However the decline in market value at December 31 resulted in $3.5 million of unrealized losses. Combined, the Academy experienced a negative 8.1 percent return on the portfolio.

Combined statement of activities

Combined revenues of the Academy and Association were $39.0 million, an increase of $1.7 million over the prior year. Increased membership provided $900,000 more, which included revenue sharing from the collaborative arrangement with JBJS that provided Fellows with a free subscription. Total education revenues increased $700,000 as products and CME course registration revenues more than offset a decline in revenues from the Annual Meeting. Health Policy was up about $250,000 due to greater PAC participation.

The division of revenues is reflected in the graph below labeled “2002 Revenues.” The “2002 Revenue Sources” graph reflects functional sources, including contributions and grants, which are not broken out in the Combined Statements. Those segments in shades of blue all relate to educational activities. The final graph “2002 Expenses” reflects the expense catagories in the Combined Statements.

Combined expenses of $39.7 million increased $2.6 million over 2001. Ofthis, $1.3 million was due to the JBJS subscription member benefit. Also, Academic Affairs, a new council initiated in late 2001, completed its first full year increasing expenses by $700,000. Consulting fees related to the McGladrey Report and reorganization added nearly $300,000 in expenses. Investment losses noted earlier of $2.3 million and an excess of $600,000 restricted funds used than received combined to generate a $3.6 million loss.

2003 Budget

Revenues from the 2003 Annual Meeting in New Orleans are expected to increase. The dues increase should stem the operating losses incurred during the past three years. These losses were planned, as it was decided to use accumulated net assets to develop Orthopaedic Knowledge Online (OKO) as a free member benefit. As noted earlier, OKO is operational and continues to expand its offerings.

Recent forecasts have estimated a positive operating income for 2003. As of this writing, investments show positive gains as well. And looking ahead, we have great expectations for the Academy’s 71st Annual Meeting in San Francisco.

Summary

As you can see by the accompanying graphs, education continues to be the Academy’s predominate activity under our Strategic Plan priorities. New products are continually being developed, in both traditional and new technology formats. This year and next the Academy will be increasingly active in Medical Liability Reform. The need for member volunteers continues to increase. As opportunities arise, I urge you to apply through the Knowledge, Experience, Interest (KEI) database. Your involvement will ensure a robust Academy for years to come.

Edward R. Toriello, MD

Combined statements of activities

For 12 months ended December 31

2002

2001

Program revenues

Membership

$11,599,951

$10,685,355

Annual meeting

9,028,857

10,374,434

Products

10,082,065

8,361,979

Continuing education

3,548,712

3,184,754

Specialty society management

1,927,668

2,167,545

Public education and communication

1,071,045

1,121,217

Facility management revenues

918,441

943,061

Other revenues

835,586

520,029

Total revenues

39,012,325

37,358,374

Program expenses

Education

19,082,497

19,114,422

Membership

2,407,718

1,006,413

Specialty society management

2,008,394

2,248,667

Public education and communications

3,266,264

3,664,687

Health policy

2,155,428

2,048,676

Research and scientific affairs

1,463,776

1,419,360

Academic affairs

857,864

188,347

Board of Councilors

980,538

862,744

Council on Musculoskeletal Specialty

Societies (COMSS)

214,963

173,916

Total program expenses

32,437,442

30,727,232

Supporting services

Administration

2,931,344

2,638,659

Facilities management

1,838,278

1,959,340

Board of Directors

1,922,747

1,721,538

Other governance

593,660

518,729

Total supporting services expenses

7,286,029

6,838,266

Decrease in unrestricted net assets before investment activities

(711,146)

(207,124)

Investment activities

Dividend and interest income on investment funds, net of fees of $21,023 and ($19,167), respectively

245,056

402,822

Gain (loss) on investment funds

(2,546,549

(1,374,692)

Total investment activities

(2,301,493)

(971,870)

Decrease in unrestricted net assets

(3,012,639)

(1,178,994)

Change in temporarily restricted net assets Contributions

1,893,453

2,322,882

Recognition of temporarily restricted funds

(2,481,190)

(1,995,718)

Increase (decrease) in temporarily restricted net assets

(587,737)

327,164

Combined increase (decrease) in net assets

(3,600,376)

(851,830)

Net assets at beginning of year

45,830,526

46,682,356

Net assets at end of year

$42,230,150

$45,830,526

Combined statements of Assets, Liabilities and Net Assets

As of December 31

2002

2001

Assets

 

 

Cash and temporary cash investments

$7,812,731

$8,280,211

Accounts receivable  (net of an allowance for doubtful accounts of $37,000 and $42,000, respectively)

2,404,861

2,684,788

Publication and electronic media inventories (net of reserve of $50,000 in 2002 and 2001)

605,251

594,769

Investments-at market

Permanent Fund

20,000,000

14,132,516

Operating Reserve Fund

2,000,000

Surgical Skills Education Fund

6,500,000

Project Fund

5,089,149

4,842,026

Due to Operating Fund

3,388,517

3,866,734

Total investments

28,477,666

31,341,276

Prepaid annual meeting, course and other expenses

2,435,944

1,850,866

Deferred product costs

822,174

981,647

Land, building, furniture and equipment, at cost: Land and land improvements

1,169,300

1,169,300

Building and building improvements

18,649,585

17,828,237

Furniture and equipment

9,714,967

8,774,517

Total cost

29,533,852

27,772,054

Accumulated depreciation

13,146,897

11,855,207

Property and equipment net

16,386,955

15,916,847

Total assets

$58,945,582

$61,650,404

Liabilities and Net Assets

Liabilities:

Accounts payable and accrued liabilities

$4,687,772

$4,703,710

Future course fees

290,105

306,829

Deferred dues

4,023,373

4,032,365

Deferred annual meeting revenue

7,344,575

6,536,711

Deferred product revenue

369,607

240,263

Total liabilities

16,715,432

15,819,878

Net assets:

Unrestricted

41,175,633

44,188,271

Temporarily restricted

1,054,517

1,642,255

Total net assets

42,230,150

45,830,526

Total liabilities and net assets

$58,945,582

$61,650,404


Home Previous Page