1. ASC Accounting and Financial Management Essentials Presented By: D. Paul Davis, CPA, CMA CEO of Amblitel, LLC

2. ASC Challenges Market pressures Operating costs Shrinking Margins Increased competition Decreased reimbursement Increase in regulations Increase in operating costs

3. Outline ASC Accounting Fundamentals ASC Problem Accounting Areas Accounting Versus Financial Management ASC Financial Management Tools Accounting and Financial Management System Optimization

4. ASC ACCOUNTING FUNDAMENTALS

5. ASC Accounting Fundamentals ASC Accounting System Cash vs. Accrual Accounting Chart of Accounts Standard Financial Statements Accounting Software Accounting Policies and Procedures Personnel Education and Training

6. ASC Accounting Fundamentals - Cash Basis vs. Accrual Accounting TransactionsCash Basis AccountingAccrual Basis Accounting Revenue/Billed ChargesPayments ReceivedServices Performed Contractual/Other AdjustmentsPayments ReceivedEstimated When Revenue Recorded Bad Debt ExpenseNoneEstimated When Revenue Recorded Operating ExpensesExpenses PaidExpenses Incurred Depreciation ExpenseNone or When Equipment PurchasedScheduled Over Life of Asset Accounts ReceivableNoneServices Performed Accounts PayableNoneExpenses Incurred Accrued ExpensesNoneExpense Estimated When Incurred Loans PayableWhen Loan Proceeds Received Net Income/EarningsChange in CashNet Revenue, Less Recorded Expenses

7. ASC Accounting Fundamentals - General Ledger Chart of Accounts COA is the foundation of the accounting system COA facilitates thoughtful financial reporting– summary and detailed (granular level) COA enables financial management of an ASC Good COA results in operational efficiencies Bad COA inhibits financial reporting and financial management A good COA balances between being too simple and to complicated

8. ASC Accounting Fundamentals – Standard Financial Statements SAMPLE AMBULATORY SURGICAL CENTER Summary Balance Sheet For the Period Ending September 30, 2009 Current PeriodPrior YEChange Assets Current Assets Cash and Cash Equivalents $ 305,644 $ 529,567 $ (223,923) Accounts Receivable 746,285 622,855 123,430 Inventory 232,764 214,989 17,775 Prepaid Expenses 73,852 36,993 36,859 Deposits - - - Other Current Assets - - - Total Current Assets 1,358,545 1,404,404 (45,859) Fixed Assets Property, Plant and Equipment 693,198 663,660 29,538 Accumulated Depreciation (462,131) (382,831) (79,300) Total Fixed Assets 231,067 280,829 (49,762) Intangible Assets Intangibles - - - Accumulated Amortization - - - Total Intangible Assets - - - Non-Current Assets - - - Total Assets $ 1,589,612 $ 1,685,233 $ (95,621) Liabilities Current Liabilities Accounts Payable - Trade $ 174,520 $ 150,903 $ 23,617 Payroll Payables 146,672 129,325 17,347 Accrued Expenses 284,771 182,186 102,585 Current Portion LT Debt 64,413 - Total Current Liabilities 670,376 526,827 143,549 Non-Current Liabilities 87,507 134,209 (46,702) Total Liabilities 757,883 661,036 96,847 Owner's Equity Capital Contributions 682,185 - Distributions (5,422,720) (4,589,720) (833,000) Retained Earnings 4,931,732 3,604,896 1,326,836 Current Year's Net Income 640,532 1,326,836 (686,304) Treasury - - - Total Owner's Equity 831,729 1,024,197 (192,468) Total Liabilities and Owner's Equity $ 1,589,612 $ 1,685,233 $ (95,621) SAMPLE AMBULATORY SURGICAL CENTER Detailed Balance Sheet For the Period Ending September 30, 2009 Current PeriodPrior YEChange Assets Current Assets Cash and Cash Equivalents Cash - Checking $ 100,000 $ 200,000 $ (100,000) Cash - Payroll 100,000 150,000 (50,000) Cash - Savings 75,000 79,500 (4,500) Cash - Cash Equivalents 5,000 60,567 (55,567) Cash - Restricted 25,644 39,500 (13,856) Total Cash and Cash Equivalents $ 305,644 $ 529,567 $ (223,923) Accounts Receivable Accts Rec. - Patients $ 1,795,000 $ 1,637,500 $ 157,500 Res. - Statutory Adj. (250,000) (275,045) 25,045 Res. - Contractual Adj. (250,000) (275,000) 25,000 Res. - Bad Debt Allowance (250,000) (200,000) (50,000) Res. - Other Adj. (150,000) - Accts Rec. - Credit Balances (148,715) (114,600) (34,115) Total Accounts Receivable $ 746,285 $ 622,855 $ 123,430 Inventory Inventory - Med Surg $ 60,000 $ 55,000 $ 5,000 Inventory - Implants 25,000 22,000 3,000 Inventory - Pharmaceutical 85,000 80,000 5,000 Inventory - Anesthesia 10,264 10,489 (225) Inventory - Disposable Instr 50,000 45,000 5,000 Inventory - Office Supplies 1,000 - Inventory - Other 1,500 - Total Inventory $ 232,764 $ 214,989 $ 17,775 Prepaid Expenses Prepaid Exp. - Rent $ 25,000 $ - Prepaid Exp. - Insurance 30,575 6,550 24,025 Prepaid Exp. - Maintenance Agr 10,557 2,568 7,989 Prepaid Exp. - Other 7,720 2,875 4,845 Total Prepaid Expenses $ 73,852 $ 36,993 $ 36,859

9. ASC Accounting Fundamentals – Standard Financial Statements

11. ASC Accounting Fundamentals – Accounting Software

13. ASC Accounting Fundamentals – Policies and Procedures

14. ASC PROBLEM ACCOUNTING AREAS

15. ASC Problem Accounting Areas ASC Accounting Problems Revenue Recognition Medical Supplies Expense Medical Supplies Inventory Property, Plant and Equipment Establishing and Maintaining Adequate Internal Controls

16. Problem Accounting Areas – Revenue Recognition How to convert Gross Charges into Expected Cash Payments? Best Practice – Take contractual adjustments and discounts at time of billing Common Approaches: – Historical cash receipts – Value of accounts receivable

17. Revenue Recognition – Historical Cash Receipts Pros: Reactively simple Based on actual cash flows Easy for physicians to understand Cons: Does not immediately reflect price changes Revenue cycle performance impact revenue recognition

18. Revenue Recognition – Value of Accounts Receivable (Balance Sheet Approach) Pros: Tangible asset value based (substantiated) Auditors like this approach Aging profile of AR directly impacts revenue recognition Revenue recognition impacted by revenue cycle performance Cons: Difficult to realistically calculate Requires data that is sometimes difficult to gather and track Difficult concepts for physicians to understand Little changes impact value substantially

19. Problem Accounting Areas – Medical Supplies Expense and Inventory How many of you operate a perpetual inventory system? How many of you utilize the preference card functionality in your health information system? Accounting Concepts: – Matching revenues with expenses – Purchasing controls – Case costing Best Practice

20. Problem Accounting Areas – Property, Plant and Equipment Depreciable asset listing Depreciation expense calculations Accumulated depreciation tracking Book, Tax (Federal & State), and Property Tax depreciation methods Additions, disposals and renewals Annual asset inventory Best practice – Depreciable asset application – Outsource asset tracking and accounting

21. Problem Accounting Areas – Establishing and Maintaining Adequate Internal Controls What are internal controls? Definition of 'Internal Controls‘ – Methods put in place by a company to ensure the integrity of financial and accounting information, meet operational and profitability targets and transmit management policies throughout the organization. financial Examples: – Prior approval from manager on purchases – Segregation of duties

22. ACCOUNTING VERSUS FINANCIAL MANAGEMENT

23. Accounting vs. Financial Management Definition of Accounting: Financial Management Includes: – Financial planning – Financial control – Financial decision making – Considers all risks and tries to manage the risks According to the American Institute of Certified Public Accountants (AICPA), accounting is defined as: “The art of recording, classifying, and summarizing in a significant manner, and in terms of money, transactions, and events, which are, in part at least, of financial character, and interpreting the results thereof.”accounting

24. Accounting Captures and records transactions Prepares financial reports Interpret financial results Financial Management Ensure adequate cash flow Safe guards assets Monitors financial performance Acts on financial results Accounting vs. Financial Management Financial Reports Accounting Financial Management

25. Margin Management Impact Reduce costs 6.7% and Profits increase to $300 Revenue needs to Increase 20% to increase Profits to $300

26. Importance of Margin Management Sam Walton’s ten rules for running a successful company. Rule 9: CONTROL your expenses better than your competition. This is where you can always find the competitive advantage. For twenty-five years running - long before Wal-Mart was known as the nation’s largest retailer - we ranked number one in our industry for the lowest ratio of expenses to sales. You can make a lot of different mistakes and still recover if you run an efficient operation. Or you can be brilliant and still go out of business if you’re to inefficient.

27. ASC FINANCIAL MANAGEMENT TOOLS

28. ASC Financial Management Tools - Dashboard

29. Purchase Order Log

30. Financial Performance Benchmarking

32. ACCOUNTING AND FINANCIAL MANAGEMENT OPTIMIZATION

33. 1 Accounting Software Optimization is achieved when accounting software, manual processes, and personnel are in sync 2 Processes 3 Personnel Accounting System Optimization

34. Contact Information 34 CONTACT D. Paul Davis 303-908-6589 pdavis@amblitel.com www.amblitel.com