Memorial Hermann Health System (the Health System), a Texas nonprofit corporation, operates, directly and through affiliates, a multi-hospital, comprehensive health care system that has the largest market share in Houston, Texas, greater metropolitan area. The Health System’s Board of Directors exercises governance control for the Health System and retains significant reserved powers regarding its affiliates. The Health System is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code. The Health System currently operates 17 hospitals (including 11 general acute care hospitals, one children’s hospital, one orthopedic and spine hospital, two rehabilitation hospitals, and two surgical hospitals), one nursing home, a comprehensive network of ambulatory care facilities, physician organizations and an independent practice association, a health plan that underwrites group health coverage, a captive casualty and liability insurance company, and an accountable care organization. Additionally, the Health System is supported by the Memorial Hermann Foundation.
The consolidated financial statements of the Health System include the accounts of its controlled affiliates, and all significant intercompany accounts and transactions have been eliminated. The consolidated financial statements of the Health System were audited by Ernst & Young, LLP (E&Y), whose report dated September 24, 2025, except for the schedules of expenditures of federal and state awards (“Schedules”) for which the date is March 25, 2026, was furnished to McConnell & Jones LLP. Such report indicated that the Schedules were subjected to the auditing procedures applied in E&Y’s audit of the consolidated financial statements, and that the Schedules are fairly stated, in all material respects, in relation to the consolidated financial statements as a whole.
The accompanying Schedules presents federal and state grant expenditures of the Health System under programs of the federal governments and State of Texas for the year ended June 30, 2025. The information in these Schedules is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) and Texas Uniform Grant Management Standards (TxGMS). Because the Schedules present only a selected portion of the operations of the Health System, the Schedules are not intended to and do not present the financial position, changes in net assets, or cash flows of the Health System.
Expenditures on the Schedules are generally reported on the accrual basis of accounting in accordance with the accounting principes generally accepted in the United States of America. Such expenditures also follow the cost principles contained in Subpart E of the Uniform Guidance or TxGMS, as applicable, wherein certain types of expenditures are not allowable or are limited as to reimbursement.
The Health System has not elected to use the 10% de minimis indirect cost rate for the year ended June 30, 2025, as allowed under the Uniform Guidance, since it either charges indirect costs specifically approved in a grant award document or, when allowed, charges an indirect cost rate previously approved from the U.S. Department of Health and Human Services, its oversight agency.
Amounts reflected in the financial reports submitted to grantor agencies for the programs and the Schedules may not agree because of accruals which would be included in the next reports filed with grantor agencies and because of the different program year-ends.
The Health System incurred costs associated with the COVID-19 pandemic for taking emergency protective measures during the period between January 20, 2020, through May 11, 2023, and incurred property damages related to URI from February 11, 2021, through February 21, 2021, Texas Severe Storms, Straight-line Winds, Tornadoes, and Flooding from April 26, 2024, through June 5, 2024, and Hurricane Beryl from July 5, 2024, through July 9, 2024. Expenses incurred during these disasters were eligible for reimbursement under Federal Emergency Management Administration’s (FEMA) Public Assistance (Presidentially Declared Disasters) (Assistance Listing No. 97.036) . During fiscal year 2025, the Health System received FEMA’s approval for $77,110,228 which were reported in the schedule of expenditures of federal awards as of June 30, 2025, but were incurred in prior fiscal years. Additionally, eligible expenditures in the amount of $21,170,372.63 incurred during the previous fiscal years were not reported in the schedule of expenditures of federal awards since they were yet to be approved and obligated by FEMA as of June 30, 2025.
The Health System’s federal and state programs are subject to review and audit by grantor agencies. Consequently, the Health System may become liable to refund money to funding agencies where it fails to comply with contractual provisions. In addition, the Health System may not fully collect federal and state grant receivables as of June 30, 2025, related to the reported federal and state grant expenditures as these receivables may be subject to the grantors’ compliance approval process. Management believes that the results of these reviews and audits will not have a material effect on the amounts reported in the Schedules.