1 Rags to Riches LLC: Using a business model to track resident productivity Robert Houston MD Spartanburg Family Practice Residency Program

2 Residents will have the opportunity to evaluate their clinical productivity. Residents will have the opportunity to explore the different types of business opportunities in clinical practice Residents will have the opportunity to review typical financial reports that reflect their actual office productivity Program Goals and Objectives

3 Welcome to the Rags to Riches clinic The Rags to Riches clinic was established in 2009, initially with the PGY-2 residents. This virtual clinic is a partnership of 12 young physicians.

4 Partnership vs Corporation The 12 physicians in the new Rags to Riches Clinic asked a nationally recognized management group to help them work through the issue of Partnership or Corporation Lets welcome the “Smoke and Mirrors Medical Management Group.”

5 Welcome Smoke and Mirrors Clinic management firms are an option that you might want to consider when you set up your practice, they are something like real estate brokers. For a fee, you can get help setting up your office. With 12 physicians involved in this new practice, this seems like a reasonable expense.

6 Smoke and Mirrors Recommends a Practice Partnership and a Limited Liability Corporation The 12 physicians in this group will be set up as a clinical partnership. Smoke and Mirror’s representative is here to help you understand your new partnership relationship. Smoke and Mirrors also is asking each of you to buy 300 shares of the new Rags to Riches Capital Corporation. This will be $30,000 from each of you. Your representative is here to discuss the details of this LLC.

7 Sharing Profits and Expenses Profits are a function of income and income is a function of patient volume and clinic visit coding. Quarterly productivity reports will provided go over the volume of visits that were seen by the Partnership. The fee schedule will determine the amount billed for individual services.

8 Contract Options Individual productivity and expense data are usually available to all of the partners in the partnership. Profit distributions may be dictated by productivity Profit distributions may be dictated by collections Subcontracted income may be partner specific or shared. Expenses may be shared equally. Some expenses (such as malpractice premiums) may be partner specific or practice specific.

9 Smoke and Mirrors recommends the Dozen Addup Accounting firm to set up your office’s books Smoke and Mirrors recommends a cash based accounting system. The partners were asked to come to a consensus about this before setting up the partnership. Smoke and Mirrors’ representative is here to help you through this issue

10 Partnership Reports Income Reports: Fees Billings Collections Accounts Receivable Expense ReportsWages Leases Overhead Supplies Profit / Loss ReportsSummary

11 Individual Reports The Smoke and Mirrors Management have been working on the Rags to Riches reports for Each member of the new partnership will have access to the partnership’s total profit and loss Each member of the partnership will have information on their individual salary income and their productivity. These are representative of actual resident productivity.

12 Quarterly Resident Productivity Overview Welcome to a new partnership This is a new experiment Give us your feedback We hope you make a profit this year

13 In 2010 the new PGY 2 class was added to this practice model The new class of residents named themselves Bells and Whistles. Bells and Whistles were brought into the practice as employed physicians in the Rags to Riches LLC. This occurred in July and the following slides are excerpts from the 2010 year end financial report to the corporation. This was presented as a noon conference format.

14 The Dozen Addup 2010 Year End Corporate Profit and Loss report Rags to Riches had loss statements of $431,675 in Rags to Riches had to total profit of $134,987 in The starting Rags to Riches LLC cash basis was $360,000 and after this was accessed the LLC has had to borrow another $100,000 in 2009 to cover office expenses. After the “owners” meeting the $100,000 loan was retired and the $34,987 was put in the cash account.

15 The Dozen Addup Accounting 2010 Expense reports The combined Rags to Riches LLS profit and loss statements for 2010 show a fairly good progression of Net Revenue over the last year. Total operating expenses increased from about $30,000 a month to $50,000 with the addition of the new twelve physicians. With the new lease agreement the expenses will be split between the two new professional corporations

16 The Dozen Addup Accounting 2010 Provider Expense reports The combined Rags to Riches LLS provider expenses for 2010 show that the “owner” physicians were salaried equally, but at a higher level than the physicians that were brought on as employees. Total provider expenses were about $400,000 and this comes out to about $35,000 for “owners” and $15,000 for employed providers (six months). All of the providers want a pay raise and this was part of the issue with splitting the two physician groups.

17 Smoke and Mirrors Reports Income Reports: Provider RVU reports CPT Billings Expense ReportsCapital Expenses Wages Overhead Supplies Provider Expenses Profit / Loss ReportsSummary

18 Smoke and Mirrors Medical Management Reports for 2011 Clinic management firm has been working on 2011 first quarter reports. Rags to Riches now is an independent LLC. Bells and Whistles is a new LLC.

19 First Quarter 2011 reports for Rags to Riches Rags to Riches LLC has had an excellent first quarter of the year. With the increased patient volume and the new lease agreement with Bells and Whistles their expenses have been cut significantly. Their first quarter income is $383,013 and their office expenses under the new lease were $93,930. They have paid their professionals $203,892 and their total profit for the first quarter of 2011 was $179,121.

20 First Quarter 2011 reports for Bells & Whistles Bells and Whistles LLC has a first financial statement for their new corporation. Their first quarter income is $126,838 and their office expenses under the new lease were $62,446. They have paid their professionals $158,486 and their loss for the first quarter was -$31,648.

21 Smoke and Mirrors Reports Income Reports: Provider RVU reports CPT Billings Expense ReportsCapital Expenses Wages Overhead Supplies Provider Expenses Profit / Loss ReportsSummary

22 Individual Reports Each member of Rags to Riches LLC and Bells and Whistles LLC will receive a report on 2010 productivity. Individual members will receive a breakdown on their clinical services rendered by CPT code and RVU Each member of the partnership will have the Work, Malpractice and Expense values for their RVU billings. The presented data at the meeting today will be presented for Rags to Riches “total income and expenses”

23 The Dozen Addup Accounting 2011 Profit and Loss reports The good news for 2011 is that Rags to Riches made $179, 121 in profit in the first quarter of the year. With this cash influx the value of the corporation has risen significantly. The Rags to Riches LLC now has about $214, 108 in cash reserves. It looks like the $360,000 initial stock sale investment made to start up the corporation will be surpassed in the second quarter!!!

24 Smoke and Mirrors First Quarter of 2011 review for Rags to Riches LLC The physicians in the Rags to Riches LLC have been on similar salaries since starting the corporation. The “owner” physicians have actually made a profit for 2010 and the first quarter of Multiple “owners” were on medical leave in the last year and productivity varied significantly by provider because of this.

25 Smoke and Mirrors First Quarter of 2011 review for Rags to Riches The “owner” physicians have a planned meeting next month to discuss the way that the members of the corporation are salaried. Some “owners” would like to see a productivity formula implemented to reward the members that are working more hours and producing more income.

26 Smoke and Mirrors First Quarter of 2011 review for Rags to Riches After reviewing the first quarter financial reports the “owner” physicians are projecting increases of about $180,000 per quarter. This increased corporate revenue can be used to increase “owner” physicians’ salaries. With 12 providers this would result in a $15,000 increase per quarter, up to $60,000 a year. This would result in a more reasonable $95,000 salary for “owner physicians.

27 Smoke and Mirrors First Quarter of 2011 review for Rags to Riches The “owner” physicians meeting next month will be an interesting one. Stay tuned for the next edition of “Rags to Riches Limited Liability Corporation.”

28 Smoke and Mirrors First Quarter of 2011 review for Bells and Whistles LLC Bells and Whistles LLC is open for business! Physician salaries are better, but still not great. With the $360,000 stock infusion to the LLC, the office is still in the black. The $31,648 loss in the first quarter is very manageable and hopefully the practice will break even in the second quarter!!

29 Smoke and Mirrors Summary This presentation is too short to go over the 2011 sale of the practice from the graduating PGY 3 residents to the incoming PGY 2 residents. I will go over briefly how the monthly resident productivity reports are generated and up the floor for discussion.