UCSF Financial Plan Fall 2013

1. 10/30/2013 UCSF Financial PlanFall 2013

2. UCSF Financial Plan Presentation Overview • Strategic and Business Planning at UCSF • 2013 Actual Financial Results • Operating Statement Projections • Combined Enterprise • Campus Segment • Medical Center Segment • Balance Sheet Projections • Cash • Capital • Debt • Core Financial Plan • Fall 2013 Summary • Summary

3. UCSF Financial Plan Strategic Priorities Drive the Business and Financial Planning UCSF’s Broad Strategies UCSF’s Business and Financial Planning: 10 Year Horizon Enterprise-wide priorities establish the foundation for Business and Financial Planning Process conducted every 3-5 years Establishes the broad framework for directional decision-making, prioritization and resource allocation.Process starts in May; concludes in October Annual Budget and Financial Projection • Macro level. Line of sight over a decade • Informed by Dept. Business Plans • Incorporates investments for programmatic, capital and technology priorities • Highlights balancesheet and cash flow considerations: • Unrestricted cash • Debt capacity Patients Discovery Medical Center Segment Campus Segment UCSF’s 10 Year Projection and Annual Budget Core Financial Plan Provides high-level Education Coordinated and Inter-Related Departmental Business Plans – 5 Year Horizon organizational priorities, goals, specific tactics and metrics Process starts in January; concludes in June • Financial Forecast • Consistent assumptions • Current initiatives External Financing Plan • Current State • Strengths • Issues/Concerns • Future State • Top opportunities • Business Case Analysis People Operating Plan Capital Plan Technology Plan Financial/Admin Services Executive VC/Provost Medical Center Diversity/Outreach Development/Alumni Relations School of Medicine Business Global Health Sciences Strategic Comm/Univ Relations School of Pharmacy QB3 Legal Affairs School of Dentistry School of Nursing

4. UCSF Financial Plan: Executive Summary • UCSF financial performance exceeds projection for 2013 • 2013 income from core activities on a combined enterprise basis increased to $126M, exceeding the projection for both Campus and Medical Center Segments • However, the positive variance was largely attributable to non-recurring events • And, the Campus recorded a loss from core activities and the Medical Center a gain • 10-year operating projections show near term deficits and recovery in latter years • Pressure on federal research and the clinical enterprise result in projected near term deficits • Projected latter year surplus includes stabilized operations of the new hospital, return to normal increase in federal research, focused FTE management and an increasingly important role of philanthropy • Assumptions around post employment benefit costs critical to plan beyond 2015 • Strong Balance Sheet • Cash and short term investments at $2.1B; increasing over the 10 year period • Debt at $2.0B, expected Campus addition of $677M to fund capital projects, largely seismic mandates • Capital expenditures in next ten years projected at $3.5B, $1.36B for the Campus Segment and $2.14B for Medical Center • Stable, long-term funding for Facilities Investment Needs must be addressed • Pressure on Core Financial Plan resources partially mitigated by Infrastructure and Operations Funding Plan • Expected reduction in Core Financial Plan resources from $368M in 2013 to $173M by 2023 • Priority investments in seismic remediation are mandatory • Challenge is to continue to focus on ensuring sufficient funding for strategic investments, IT investments and long term facilities investment needs • UCSF is positioned to manage through challenges, yet requires constant vigilance

5. UCSF Financial PlanFall 20132013 Actual Results andComparison to Projection

6. UCSF Financial Plan – Combined Enterprise Revenue ~80% of our revenue is from competitive and rapidly changing markets – over half from the clinical enterprise and nearly 30% from the research enterprise 2013 Revenues Supporting Core Activities Combined Enterprise: $4.14 billion • Federal $663M • State 67M • Private 236M • Local 148M • Medical Center (net of clinical teaching support) $1,738M • Faculty Practice Plan 426M • Educational Appropriation$162M • UCOP Tax 26M • State Lease Revenue Bonds$7M • Federal BABS Subsidy 21M • Fee for serv & patient rev $153M • Dental clinic 17M • Laboratory service fees14M • Consulting fees 4M • Continuing education 8M • Other 2M • Hepatitis-B$6M • Bovine Growth Hormone 3M • Other 9M • Transfers from Foundation$54M • Foundation endowment payout 27M • Gifts Directly to UCSF 30M • Housing$17M • Parking 15M • Recreational Programs 12M • Other 5M • STIP$28M • TRIP17M • TRIP incremental distribution 21M • Regents endowment payout 38M • Bond escrow and other 7M • Professional degree fees $36M • Tuition 33M • Student fees 16M • Other 4M • Scholarship allowance (32)M • Sales and Service Non-educational $43M • Lease Rental 14M • Gallo Glidepath 8M • Other revenue 35M

7. UCSF Financial Plan – Combined Enterprise Expenses While 65% of our expenses are driven by personnel-related costs 2013 Expenses Associated with Core Activities Combined Enterprise: $4.01 billion • Campus $1,265M • Medical Center773M • Campus$563M • Medical Center 523M • Electricity$12M • Natural Gas 9M • Water and sewer 8M • Utility services and other 4M • Scholarships and fellowships$56M • Less: amounts shown net to tuition and fees $(32)M • Campus$48M • Medical Center 16M • Campus$114M • Medical Center 101M • UCRP $158M • Retiree Health 39M • Health, dental and vision 193M • Social security and Medicare119M • Workers compensation and other 35M * As of June 30, 2013

8. UCSF Financial Plan 2013 Actual vs. 2012 Actual ($Millions) KEY TAKEAWAYS • UCSF’s Medical Center and Campus have over $4 billion in revenue and expense • Increase in income due to both revenue growth, expense control, and one time expense reductions Combined Enterprise • Slight growth in revenue, other than PSA • Increase in expenses due to UCRP employer assessment from 7% - 10%; salary growth of 2%, and full year depreciation of Sandler Neurosciences building • The Campus core activities are close to break even • The Medical Center provides investment in clinical practices and strategic support Campus Segment • Revenue from core activities increased by 9% • Revenues going forward are under pressure from the Accountable Care Act (ACA) • Core operating expenses increased 7%. While salaries increased 4%, benefits increased 11%, primarily due to UCRP employer assessment. Medical Center * Professional Services Agreements (PSA) and other campus services provided to Medical Center are recorded as Campus revenue and MC expense and are eliminated in UCSF consolidated financial statements.

9. UCSF Financial Plan 2013 Core Activities Actual vs. Projected Results ($Millions) KEY TAKEAWAYS Combined Enterprise • Better than expected results largely due to increased Medical Center revenue, one time avoidance of costs related to salaries and benefits and careful expense management • Campus revenues meet projection • Campus loss ($9M), better than projection by $31M • Lower than projected expenses, primarily due to the inability to implement a 3% merit adjustment ($10M) and a one time reduction of retiree health expenses ($10M) Campus Segment Medical Center • MC income $135M, better than projected by $25M • MC excess income primarily driven by retail pharmacy growth, labor productivity improvements and extraordinary items. • MC investment in clinical practices exceededbudgetdue to support for campus strategic initiative fund

10. UCSF Financial Plan: Base CaseRevenues, Expenses and Income over the next 10 yearsCombined Enterprise (Campus + Medical Center)

11. UCSF Financial Plan – Combined Enterprise Core Revenues, Expenses, and Income Projection Actuals 2013 Ten Year Projection 2012 Ten Year Projection MB Hospital Opening 2/1/15 • Key Takeaways: • Consolidated forecast trends through 2016 remain unchanged from prior forecast; Crossover remains in 2015 at similar level as previously projected. Steep increase in post-employment benefits stabilize after 2015. • Medical Center steadily recovers over the projection period as the new Mission Bay hospital cost structure is rationalized over time • Campus recovery is more protracted – very moderate revenue growth rates • Increased role of philanthropy, however, the level of uncertainty increases in the outer years

12. UCSF Financial Plan – Combined Enterprise Personnel related costs, in particular post-employment benefit costs, are outpacing relatively modest revenue growth Revenues Expenses (2016) PERSONNEL COSTS Campus CAGR 2% MC CAGR 4% Compound Annual Growth Rate 2016: $4,547M $2,469M $694M $68M $241M $188M $161M $726M 2016: $4,670M $2,266M $722M $1,148M $119M $303M $113M (2023) PERSONNEL COSTS MC CAGR 4% Campus CAGR 3% Compound Annual Growth Rate 2023: $5,911M $3,286M $868M $78M $300M $222M $268M $889M 2023: $5,770M $2,833M $982M $1,396M $118M $314M $127M

13. UCSF Financial Plan: Base CaseRevenues, Expenses and Incomeover the next 10 yearsCampus Segment

14. UCSF Financial Plan Executive Summary – Campus Segment • Research Revenue • Long-term Federal research funding uncertainties, including sequestration • Private research fundingnot expected to outpace Federal funding in the near term • Continued program growth expected in several programs including Cancer Center, Cardiovascular Research Institute, and Neurosciences • Opportunity to grow other strategic programs while protecting critical existing programs • Investment in Development and focus on the role of philanthropy is critical • Significant Focus on Personnel and Expense Management Required • Must contain personnel related costs – refined compensation strategies and level of FTE • Assumptions around post employment benefit costs are critical to this plan • Leverage strategic sourcing efforts • Continue to leverage administrative talent, expertise and cost structure. We need both effectiveness and efficiency. • Strong Balance Sheet (excludes effect of Pension and Retiree Health liabilities) • Seismic mandates are significant factor in the capital plan • Stable, long-term funding for Facilities Investment Needs must be addressed • Information technology and strategic initiatives will require increased capital investment • Need to be thoughtful about debt capacity for programmatic aspirations beyond the 10 year period

15. UCSF Financial Plan – Campus Segment Core Revenues, Expenses, and Income Actuals Projection 2013 Ten Year Projection Difference represents Medical Center investment in the clinical practices and strategic initiatives 2012 Ten Year Projection • Key Takeaways: • Similar decline in early years as in previous forecast; recovery accelerates in outer years of forecast horizon • Break even in 2018, including $70M Medical Center investment in clinical practices and strategic initiatives • Revenues - 2016 CAGR 2.3%; 2023 CAGR 3.1%. Pressure on research revenue; increased focus on philanthropy • Expenses - 2016 CAGR 3.4%; 2023 CAGR 3.1%. Pressure on salaries and wages, UCRP employer contributions maintained at 15.1% from 2015 and beyond. Uncertainty around UC Path costs or other system-wide initiatives

16. UCSF Financial Plan – Campus Segment Key Revenue Assumptions Contracts & Grants Revenue Assumptions 2016 Campus Revenue CAGRs • Federal ($663M in 2013) 2016 CAGR 1.5%; 2023 CAGR 2.7% • Growth in Direct Base - Flat for 2014, increasing to 3% by 2016 and beyond • Indirect Cost Recovery rate increase from 54.5% to 58.5% by 2016 (negotiated), increase an additional 4% to 62% by 2021 (anticipated) • Private ($236M in 2013) 2016 CAGR 0.7%; 2023 CAGR 2.5% • Growth in Direct Base - Flat for 2014, increasing to 3% by 2017 and beyond • Local Government ($148M in 2013) 2016 CAGR 3.2%; 2023 CAGR 3.0% • Primarily SFGH contract; 3% increase annually Compound Annual Growth Rate 2016: $2,078M $694M $241M $163M $188M $161M $631M Other Revenue Assumptions • Tuition and Fees ($57M in 2013) 2016 CAGR 2.1%; 2023 CAGR 2.5% • No increase in tuition (Ed Fee and Non-Resident) during projection period • Professional Degree Supplemental Tuition (PDST) increase of 8% in 2014 for School of Nursing and 3% for Translational Medicine Program, 3% increase in all PDSTs from 2015 on • State Educational Appropriations ($162M in 2013), State Funds used for UCOP Assessment ($26M in 2013) 2016 CAGR (0.1%); 2023 CAGR 1.3% • 2014 based on actual UCOP allocation ($172M); State Education Appropriations adjusted due to Governor’s Budget Target Numbers, modified by the UCSF corridor results in a 3.5% increase in 2014 and 2015; 2.5% thereafter. New UCOP funding model removes $20M in 2015. • Private Gifts and Fundraising ($111M in 2013) 2016 CAGR 13.1%; 2023 CAGR 9.2% • Visibility to Foundation transfers to UCSF in the near-term. • Increased focus on philanthropy. Gifts and transfers from Foundation of $133M in 2014, growing to $268M in 2023 • Total investment return of between 6-7% for the decade. 5% Foundation payout assumption. • Investment Income ($94M in 2013) 2016 CAGR 3.9%; 2023 CAGR 4.1% • Assumes Short-Term Investment Pool (STIP) /Total Return Investment Pool (TRIP) investment is allocated 42% STIP and 58% TRIP as in 2014 • Growth in STIP yield from 2% in 2014 to 4% by 2023; TRIP yield flat at 4.75% for entire forecast period – change in payout methodology

17. UCSF Financial Plan – Campus Segment Key Expense Assumptions Salary and Benefits Assumptions 2016 Campus Expense CAGRs • Salary &Wages ($1,265M in 2013) 2016 CAGR 2.4%; 2023 CAGR 3.1% • Merit pool, net of FTE adjustments: 3% in 2014 (recognizing increase in employee contribution to UCRP), 2.5% in 2015 to 2017, 3% in 2018 to 2020, 3.25% in 2021 to end of forecast period • Equity pool $2M in 2014, $4M in 2015 to 2019, $5M beyond • Employee Benefits ($319M in 2013) 2016 CAGR 8.6%; 2023 CAGR 6.3% • UCRP – 12.65% in 2014, increasing to 15.10% for 2015 and beyond. Includes .65% growing to 1.1% by 2015 for the repayment of the STIP loan. • Active health – 3% for 2014, 4-5% for the rest of forecast period • Retiree health – up 24% for 2014, 4-5% for the rest of forecast period Compound Annual Growth Rate 2016: $2,155M $1,359M $408M $174M $64M $124M $16M Other Expense Assumptions • Supplies ($164M in 2013) 2016 CAGR 2.0%; 2023 CAGR 2.2% • Annual increases at 2.00%; increasing to 2.25% per year after 2017. Leverage Bear Buy investment / P200 initiative • Utilities ($21M in 2013) 2016 CAGR 1.6%; 2023 CAGR 2.6% • 2014 of (1%), and 0% in 2015 based on negotiated contracts/futures, energy savings programs, and lower fuel costs • 6% increase in 2016 due to Mission Hall opening, and 3% in subsequent years • UCOP Fee ($40M in 2013; $52M including the MC portion) 2016 CAGR (14.5%); 2023 CAGR (3.3%) • Increase of 9% in 2014, 2% per year thereafter. Uncertainty in this area. • UCOP modification to allocation methodology in 2015 estimated to reduce both State Appropriations and UCOP Fee by $20M • UCPath ($0M in 2013) • Total costs generally includes 1) Recruitment, Retention and Severance, 2) Implementation and Pre-Rollout, 3) UC Path Loan Payback and 4) UCR operating costs. Total cost for all UCSF estimated at $114M ($5.2M for 2014, $10.4M for 2015, $15.7M for 2016 and $13.7M/year thereafter). A portion of the costs included in campus segment: $3.9M for 2014, $7.4M for 2015, $9.4M for 2016 and $8.1M/year thereafter. The remainder are included in the MC segment.

18. Multiple Efforts Underway to Manage the DecadePotential Upside and Downside to the Campus Segment Base Case(captures many but not all possibilities)

19. UCSF Financial Plan– Campus Segment We have multiple opportunities and efforts underway OBJECTIVES Improved Operating Margins Improved Capability to Support Enterprise-wide Priorities • Revenue Growth Opportunities • Philanthropy – increased focus • Focus on Clinical Enterprise Plan • Intellectual Property and Public/Private Partnerships • Balance Sheet Management • Grant Funding and Facilities and Administration Cost Recovery • System-wide Initiatives • Administrative efficiencies • Business/Finance Strategies • Stabilize State Support • Administrative Restructuring • and Investments, with Expertise/Career Paths • BearBuy e-procurement / leveraging spend • Administrative restructuring • Finance – Technology/Finance3 • IT Organization, Desktop support, Data Center and Help Desk • Research Pre-Award – Technology and Organization • HR and Academic Personnel – Technology, Organization, and Specialty Centers • Core Financial Plan Initiatives • Century Bonds to support facilities investment needs • New TRIP investment model • Certain revenue growth and administrative efficiency activities positively affect the CFP • Infrastructure and Operations Funding Plan

20. Leverage BearBuy and P200 Program • Additional expense reduction of $2M in 2015, $3M in 2016, $4M in 2017 and $5M in subsequent years • Philanthropy/Private Gifts Increased • Use the optimistic private gift scenario from University Development • Increasing from a 10 Year CAGR of 9.2% in the base case to 11.4% over the decade UCSF Financial Plan - Campus Segment Upside Opportunities Key Assumptions Revenue Increases / Expense Decrease • Continue Consolidation / Efficiency Programs – Non-Research / Clinical Staff throughout UCSF • Further reduce staff FTE on clinical or non-sponsored funds by 1% in 2015, 2016 and 2017 • Federal and Private Contract & Grants directs increase in near term • From 0% in 2014 to 2.5%, growth for additional years of forecast period remains the same • Gain shown reflects ICR only, assume directs increase offset by increased expense • Short Term Investment Pool (STIP) Rate Increase • Additional rate increase of 1% per year, resulting in STIP yield from 3% in 2015 to 5% in 2023 • Tuition and PDST Increase • Additional 1% per year starting in 2015 through end of forecast

21. UCSF Financial Plan – Campus Segment Potential upside opportunities could collectively contribute up to an incremental $34M in 2016 and $113M by 2023 $175M Income AFTER Medical Center Investment in the Clinical Enterprise and Strategic Initiatives $62M $16M $49M Base Case ($18M) * Note – a substantial portion of this increment would likely be invested in programs ** Increase in Directs is $21M in 2016 and $34M in 2023

22. UCRP Employer contribution increases • Increases to a maximum of 19.1% by 2017 (UCRP at 18% plus 1.1% for the payback on STIP borrowing) • Philanthropy/Private Gifts scenario not met • Decreasing from a 10 Year CAGR of 9.2% in the base case to 7.6% over the decade UCSF Financial Plan - Campus Segment Downside Risks Key Assumptions Revenue Declines / Expense Increases • Salary Increases unable to be contained • Salary rate assumption increased by 1% in 2015, 2016, and 2017 (up from 2.5% for these three years) • Federal and Private Contract & Grants directs increase at a slower rate in near term • 1% growth for 2015, 2016 and 2017 (down from approximately 2.5%, 3% and 3% in these respective years) • Growth for additional years of forecast period remains unchanged • Assume impact affects ICR only (same as upside scenario) • Fundraising Goals for Neuroscience not met • Assumes $40M of gap in funding • Results in reduced payout and transfer from Foundation FFE of $2M per year starting in 2015 • Federal Indirect Cost Recovery Rate • Include only 2% of the assumed 4% Indirect Cost Recovery increase beginning in 2017

23. UCSF Financial Plan - Campus Segment Potential downside risks remain: ($68M) in 2016 and ($196M) by 2023 Income AFTER Medical Center Investment in the Clinical Enterprise and Strategic Initiatives $62M $49M Base Case ($18M) ($86M) ($134M) ** Decrease in Directs is ($19M) in 2016 and ($46M) in 2023

24. UCSF Financial Plan Medical Center 24

25. UCSF Financial Plan: Medical Center Executive Summary • Revenue Growth Rates Challenged - fundamental change in care delivery and payment models • Reductions in Medicare and Medi-Cal reimbursement rates • Commercial payor rate increases tightening and migration to lower Health Insurance Exchange (HIE) rates • Migration from Fee For Service payments to Population Health Management under Healthcare Reform • Societal demands for pricing transparency • Significant Cost Reductions Planned: purchasers and patients expect lower cost of care • Relative to other academic institutions, UCSF is a high cost provider of care • Developing a culture of continuous process improvement is imperative to reducing cost per case from the 95th to 75th percentile and allowing UCSF to remain competitive in a value-based environment • Demand for new, costly Information Technology (IT) applications and infrastructure • Increasingly complex regulatory environment requires additional resources to demonstrate compliance • Strategic opportunity to migrate to a Health System • Opening of Mission Bay campus generates growth in Children’s, Women’s and Cancer services • Vacated space at Parnassus Heights creates capacity for growth of adult programs • Creation of a UCSF-led Accountable Care Organization (ACO) facilitates transition from a medical center to a health system with partners such as Children’s Hospital & Research Center of Oakland (CHRCO) • Restructured Funds Flow aligns incentives and increases access to care across the clinical enterprise • Balance Sheet has limited borrowing capacity and low days cash on hand • Strategic opportunities will require increased level of capital investment • Current philanthropy targets not met requiring interim financing to complete Mission Bay project • Demand for capital to fund strategic initiatives and IT, coupled with a lack of alternative funding sources, decreases funds available for routine renewal and replacement of equipment and facilities

26. UCSF Financial Plan – Medical Center Revenues, Expenses, and Income Actuals Projection Difference represents Medical Center investments in the clinical practices and the campus strategic initiative fund 2013 Ten Year Projection MB Hospital Opening 2/1/15 2012 Ten Year Projection • Key Takeaways: • Consistent performance with last year’s forecast predicated on identifying additional cost reductions of $330M over the projection period • Earnings decline in 2016 is due to Mission Bay interest, depreciation and incremental fixed cost structure. Decline is minimized with strong earnings push between 2013 and 2015 and a five year $323M mitigation plan. • Revenue CAGR is 4.1% over the next ten years recognizing only 1.4% volume CAGR and tightening reimbursement increases. • As in the prior model, labor productivity is assumed to improve from the 95th to 75th percentile over 5 years starting in 2017.

27. UCSF Financial Plan – Medical Center Key Revenue Assumptions 2016 MC Revenue CAGRs Government Assumptions • Medicare ($358M in 2013) 2016 CAGR 3.9%; 2023 CAGR 2.1% • 3.9% CAGR due to increases in volume and Case Mix Index (CMI), partially offset with a rate decrease. • Medi-Cal ($214M in 2013)2016 CAGR 3.1%; 2023 CAGR 4.1% • 3.1% CAGR driven by volume, cost structure increases related to Mission Bay, and payor mix migration from commercial to Medi-Cal and managed Medi-Cal. Compound Annual Growth Rate 2016: $2,469M $637M $1251M $455M $126M Total Revenue Government Commercial Professional Service Other Agreement (PSA) Other Revenue Assumptions • Volume • Modest inpatient growth (0.6 - 1.0%) projected to maintain market share. Aggressive outpatient growth (2.0-5.1%) driven by impact of funds flow and intensity of services. • Payor Mix • Sponsor Mix – Impact of insurance exchanges expected to shift patients with traditional commercial insurance into plans that resemble managed Medi-Cal. 0.5% shift each year beginning in 2015. • Commercial ($1082M in 2013)2016 CAGR 5.0%; 2023 CAGR 4.7% • Commercial payor rate increases (4-5%) soften due to migration to lower Health Insurance Exchange (HIE) rates • Physician Practice Revenue - Professional Service Agreement (PSA) ($410M in 2013; all payors) 2016 CAGR 3.5%; 2023 CAGR 4.6% • Growth in outpatient activity (2.0-5.1%) combined with payor rate increases. • Other Patient, Non Patient and Non operating Revenue ($132M in 2013)2016 CAGR (1.5%); 2023 CAGR 2.3% • Decreases due to lower interest income and retail pharmacy revenue.

28. UCSF Financial Plan – Medical Center Key Expense Assumptions Salary and Benefits Assumptions • Salary and Wages ($773M in 2013)2016 CAGR 5.5%; 2023 CAGR 3.8% • 3-5% annual wage rate increases • Staffing – 300 additional FTEs added to support multi-site operations post Mission Bay opening in 2015 • Variable FTE growth in response to volume growth • Employee Benefits ($224M in 2013)2016 CAGR 11.9%; 2023 CAGR 5.8% • UCRP – 12.8% in 2014, increasing to 15% for 2015 and beyond. • Active health – 5% for 2014 and 4-5% for the rest of the forecast period • Retiree health – 3% for 2014 and 4-5% for the rest of the forecast period 2016 MC Expense CAGRs Compound Annual Growth Rate 2016: $2,515M $907M $314M $354M $234M $706M Other Expense Assumptions • Supplies Expense ($307M in 2013)2016 CAGR 4.9%; 2023 CAGR 5.0% • Volume growth and 2-3% inflation; partial offset by savings initiatives and reduced utilization • Interest and Depreciation ($118M in 2013)2016 CAGR 25.6%; 2023 CAGR 6.8% • Growth in Interest and depreciation from 2013-2016 is $116M • Other Expenses ($639M in 2013) 2016 CAGR 3.4%; 2023 CAGR 3.3% • Increases in excess of inflation due to: • Annual increase in purchased services related to the new Clinical Enterprise Funds Flow model of $21M • UCPath - $0 in 2014 , $2.0M per year loan payments 2015 - 2021, $4.5M per year operating expense 2015 – 2023. • Increases related to the transition to and opening of Mission Bay Hospital

29. UCSF Financial Plan – Medical CenterForecast Sensitivity - Results are very sensitive to changes in inpatient/outpatient volume, commercial rates and payor mix • Key Takeaways: • This sensitivity analysis shows the impact of a 1% decline as a stress scenario. A corresponding improvement would yield a similar magnitude of positive impact • Decreasing Commercial rates from 5% to 4% or moving 1% from the Commercial payor mix to government payors has the biggest impact to the Medical Center bottom line and key metrics • 2015 projection includes inpatient growth of 0.6% and outpatient growth of 4.3%. A 1% decrease would eliminate the inpatient growth and significantly decrease outpatient growth.

30. UCSF Financial Plan Balance Sheet: Cash, Capital and Debt 30

31. UCSF Financial Plan – Combined Enterprise Balance Sheet – As of June 30, 2013 • Campus $1,126M • Medical Center $889M • Key Takeaway: • Balance sheet priorities are: • Managing cash/investments • Capital spending/capital assets • Debt capacity/debt service

32. UCSF Financial Plan – Combined Enterprise CashCashshows growth though 2023 $Millions $2,668M $2,495M $2,322M $2,164M $2,128M $2,038M $1,996M $1,941M $1,913M $1,864M $1,891M $1,842M $1,804M • Key Takeaways: • Growing cash balance over the 10-year period, although combined days of cash on hand drops by 15% • To the extent cash is generated through philanthropy, a substantial portion would likely be invested in programs • Investments in Total Return Investment Pool (TRIP) increase from $792M in 2012 to $1.12B in 2014 • Medical Center segment cash declines over the period, it recovers subsequent to the opening of the new hospital at MB

33. UCSF Financial Plan – Combined Enterprise Cash Cash and Investments – As of June 30, 2013 • The majority of UCSF resources are committed or restricted for specific uses: • School of Medicine primary reserve ratio of 40% is aligned with recommended industry best practice, allowing financial flexibility to transform operations to meet future needs: • Academic program investments, capital investments and recruitment retention packages to support research commitments to recently hired faculty. • Explore strategic investments needed to maintain UCSF’s preeminence as a top medical school and patient care provider in the US. • Provide stability to manage operations and to retain and attract top class faculty through the current uncertainty of tightening federal research resources. • Mitigate potential strain on physician fees supporting the school as the institution works the effect of the Affordable Care Act on its clinical operations. • Core Financial Plan reserves support significant investments over the next 10 years for operations, facilities investments, including major seismic renovations across the campus, debt service on construction projects both planned and underway, investment in Information Technology, and investments in Strategic Initiatives. • Medical Center reserves at 78 days cash on hand is low in relation to industry ratios (AA rated hospital median ratio is 432 days). Cash reserves are needed to meet debt service on the Mission Bay Hospital construction, related startup costs in 2015 – 2017 and daily operational needs.

34. UCSF Financial Plan – Combined Enterprise Capital Plan UCSF’s Capital Spending Plan totals $3.5 billion 2014 through 2023 • Campus Segment - $1.36B • $502M Mandatory Seismic Projects, with Cushioning • UC Hall • Clinical Sciences Building • SFGH • $161M Facility Investment Needs (FIN) • $377M Other Projects (Scheduled Renewal; IT and Equipment capital expenditures) • $187M Program Projects • Mission Hall • Schools Renovation projects • Diller 4th floor build out • $100M Laurel Heights Replacement • $36M Auxiliary/Parking/Housing • Parnassus Housing • Millberry Union Garage Repairs • Mission Bay Surface Parking $Millions $710M $708M $308M $309M $274M $282M $259M $242M $214M $199M • Medical Center - $2.14B • $690M for the completion of the Mission Bay Hospitals in 2015 • $1.45 billion for strategic initiatives, backfill projects, Information Technology, renovation, replacement, and equipment equates to 85% of depreciation. • Key Takeaways: • Priority investments in mandatory seismic renovations – UCH, CSB and SFGH • Program investments are modest – predominantly Mission Hall and Diller • Strategic investments to consolidate locations are included in the plan, although in later years – LH’s • Investments for Facilities Investment Needs require additional funding - competes for resources in the core financial plan • Medical Center – complete the Mission Bay facilities; invest in strategic and programmatic areas

35. UCSF Financial Plan – Campus Segment Capital Plan Campus Capital Plan: Funding assumptions Funding Assumptions 50% 48% • Key Takeaways: • Ten year capital spending estimated at $1.36B • Cost escalations are now included in the model starting in 2014 • Funding assumption shows ~50% funded with additional debt ($677M) and ~48% with equity ($661M) – assumptions are integrated into the Core Financial Plan • Gifts assumption of ($26M) may indicate an opportunity for additional philanthropy for capital projects

36. UCSF Financial Plan – Combined Enterprise Debt $Millions • Key Takeaways: • Total debt increases by $250M during the ten year period (net of amortization) • Campus additional debt of $677M includes seismic remediation, Mission Hall, Laurel Heights replacement and auxiliary projects. Debt service coverage remains above 2.0 times during the projection (generally, UC threshold is 1.75) • Medical Center projections include new debt financing of $407M; $211M of interim financing required in 2015 to offset slower than anticipated Mission Bay pledge collections; $20M per year for equipment leases. Debt service coverage remains slightly above 3 times during the projection period. • Facility investments needs generally funded from equity/cash flow. Continue refinement of priorities • Continued refinement of scope, cost, and funding plan for CSB, UCH and SFGH

37. UCSF Financial Plan – Campus Segment Projected Debt Capacity and Debt Service • Key Takeaways: • Debt capacity – be mindful of capacity for potential opportunistic investments and programmatic aspirations beyond the ten-year period • Philanthropy will likely need to play a significant role in our future programmatic aspirations • Debt service – be mindful of the effect of growing debt service obligations on the Core Financial Plan

38. Summary of Core Financial Plan Fall 2013 38

39. UCSF Financial Plan - Overview of Campus Core Financial Plan • The Campus Core Financial Plan (CFP) revenues are estimated at $546M for 2014 • Sources include indirect cost recovery, state educational appropriations, tuition, investment pool income, Infrastructure and Operations funding plan, patent and legal recoveries, and Medical Center support for strategic initiatives • Expenditures include both recurring and one time allocations estimated at $589M for 2014 • Annual recurring allocations ($358M for 2014) include campus support for operations and administration, education, utilities, student financial aid, distribution of Indirect cost recovery and distribution of patent income • Annual allocations ($231M for 2014) include operations and UCOP tax, debt service, facility investment needs, information technology investments, and strategic initiatives • Ten year projection results in a decrease of the CFP fund balance from $368M in 2013 to $96M in 2023, excluding the impact of the Infrastructure and Operations funding plan • Contribution of previously restricted reserves added $23M to the CFP • Sources of funds are expected to rise steadily but modestly (2.3% CAGR) • Commitments in the 10 year period include: • Funding for operations biggest commitment ($1.486B over ten years) include distribution to departments for fixed cost increases, UCOP administrative Tax, UCPath and P200 • Debt service payments ($615M) are expected to double in the ten year period • Facility Investment funding ($324M) for seismic mandates, emergency remediation, and capital renewal insufficient to fund all unfunded renewal facility investment needs • Technology commitment remains steady but does not cover total needs ($66M) • Strategic Initiatives ($99M) are primarily funded with Medical Center support • Infrastructure and Operations funding plan estimates increase the fund balance from $96M to $173M – consequential decision

40. UCSF Financial Plan – Campus CFP ended 2013 with a balance of $368M, which declines to $96M in 2023- Excluding an estimate for the new Infrastructure and Operations funding plan The Infrastructure and Operations funding plan would add an estimated $77 million to the 2023 ending balance.

41. UCSF Financial Plan – Campus CFPAdditional funds and revised revenue assumptions do not halt the depletion of the CFP; I&O funding plan is critical to maintaining adequate balances • Key Takeaways: • Moving previously restricted reserves from worker’s compensation and other benefits rebates to the Core Financial Plan raises the ending balance by $23 million. • Improved revenue assumptions help slow the depletion of the CFP, but the ending balance still falls to below $100M by 2023. • The Infrastructure and Operations funding plan could raise the CFP ending balance by $77M, to $173M in 2023.

42. UCSF Financial Plan – Campus CFPWithout a funding strategy, equity commitments for facilities will need to decline Capital Projects FIN and Renewal • Key Takeaways • The FIN and renewal projects are needed to avoid emergency facilities investments and deferred maintenance; investment in renewal should result in decreased financial obligation for emergency and deferred maintenance. • This model addresses $161M of the current backlog of FIN projects of ~$450M. Scheduled renewal projects typically become suspended when resources are tight – not an appropriate long-term strategy • Model includes UCSF’s borrowing of Century Bonds used as a revolving loan fund to help finance about 21% of the FIN and Renewal costs.

43. Summary

44. What this means for UCSF . . . • Excellent progress and we are assertively planning for what is ahead • Competitive landscape is changing rapidly. Strategically …. • Maintain the ability to continue to make strategic capital and programmatic investments • Make required cultural and organizational changes to support effective, nimble decisions • Align strategy with operations • Enable people to execute strategies – focus on employee engagement • Adapt to a dynamic and uncertain marketplace • Financially … solutions will continue to require a comprehensive focus on: • Revenue growth, or protection of cost-effective revenue-generating programs • Continued expense control – aggressively remove structural costs • Enterprise-wide solutions that leverage talent, capital, space, etc. • What is best for UCSF is paramount – we cannot let our attention be diverted from our priorities and execution

45. Appendix AUCSF Financial PlanBase Case