Financial Reporting Introduction John Kearns John J Kearns

Financial Reporting

Introduction – John Kearns John J Kearns • VP Finance & Corporate Controller • Integra. Med America, Purchase NY • 19 years fertility industry financial reporting experience © 2012 Integra. Med Fertility Proprietary & Confidential

Introduction – Integra. Med America, Inc. • Started in June 1985 as “IVF America, Inc” • 2014 Patient revenues > $300 million • ~ 17, 000 IVF cycles in 2013 • Taken private in Sept. 2012 © 2012 Integra. Med Fertility Proprietary & Confidential

Agenda Financial Reporting for Fertility Clinics 1. Internal Control 2. Cash vs. Accrual Accounting 3. Revenue Cycle Management 4. Benchmarking © 2012 Integra. Med Fertility Proprietary & Confidential

Internal Control Good Financial Reporting Begins with Internal Control is defined as…. • a means by which an organization's resources are directed, monitored, and measured. It plays an important role in detecting and preventing fraud and protecting the organization's resources. © 2012 Integra. Med Fertility Proprietary & Confidential

Internal Control All public corporations are required by the Securities and Exchange commission to: • Have a clearly defined set of internal controls, which, • They must test annually • Senior executives must personally sign-off on their effectiveness © 2012 Integra. Med Fertility Proprietary & Confidential

Internal Control You may say, “But I’m not a public Corporation” • Internal control is still critical as it consists of a series of checks and balances designed to detect events outside of standard policies and procedures. • • It starts with a segregation of duties among staff • Separate posting cash from depositing cash • Multiple individuals needed to disburse funds And includes a reporting element. © 2012 Integra. Med Fertility Proprietary & Confidential

Internal Control You may know it by another name, but Internal Control: • Also apples to non-financial activities • Who has keys to drug cabinets? • Are all patient encounters signed by provider • Is chain of control in the lab documented? • Are employees time-sheets accurate? • At the end of the day, everything impacts practice financials © 2012 Integra. Med Fertility Proprietary & Confidential

Cash vs. Accrual Accounting All businesses must select a philosophy for managing their financial records © 2012 Integra. Med Fertility Proprietary & Confidential

Cash vs. Accrual Accounting All businesses must select a philosophy for managing their financial records The two most common forms are Cash Basis and Accrual Basis © 2012 Integra. Med Fertility Proprietary & Confidential

Cash vs. Accrual Accounting All businesses must select a philosophy for managing their financial records The two most common forms are Cash Basis and Accrual Basis Many business owners think that Accrual Basis is a trick accountants use to steal from them… © 2012 Integra. Med Fertility Proprietary & Confidential

Cash vs. Accrual Accounting All businesses must select a philosophy for managing their financial records The two most common forms are Cash Basis and Accrual Basis Many business owners think that Accrual Basis is a trick accountants use to steal from them… In reality, it’s good internal control!! © 2012 Integra. Med Fertility Proprietary & Confidential

Cash vs. Accrual Accounting Cash Basis Accounting - Transactions are recorded when cash changes hands (i. e. , when paid) Revenue = Cash Receipts Expense = Cash Disbursement © 2012 Integra. Med Fertility Proprietary & Confidential

Cash vs. Accrual Accounting Cash Basis Accounting - Transactions are recorded when cash changes hands (i. e. , when paid) Revenue = Cash Receipts Expense = Cash Disbursement Accrual Basis Accounting - Transactions are recorded with the underlying economic event (i. e. , when earned) Revenue = When treatment is provided Expenses = When incurred © 2012 Integra. Med Fertility Proprietary & Confidential

Internal Control – Cash vs. Accrual Accounting Cash Basis Accounting • Advantage – Simplicity • Disadvantage – Looser controls. Higher chance of fraud or loss. © 2012 Integra. Med Fertility Proprietary & Confidential

Internal Control – Cash vs. Accrual Accounting Cash Basis Accounting • Advantage – Simplicity • Disadvantage – Looser controls. Higher chance of fraud or loss. Accrual Basis Accounting • Advantage – Higher control environment • Disadvantage – More complicated © 2012 Integra. Med Fertility Proprietary & Confidential

Internal Control – Cash vs. Accrual Accounting Accrual Basis Accounting = Greater Internal Control © 2012 Integra. Med Fertility Proprietary & Confidential

Revenue Cycle Management consists of: • Scheduling of patients • Accounting for all encounter forms • Timely & accurate billing © 2012 Integra. Med Fertility Proprietary & Confidential

Revenue Cycle Management Good Revenue Cycle Management consists of: • …all the above, plus • A denial review & management process • Outstanding receivables management © 2012 Integra. Med Fertility Proprietary & Confidential

Revenue Cycle Management Denial review & management consists of: • A formal process of continuous improvement designed to identify and correct reasons for claims denial © 2012 Integra. Med Fertility Proprietary & Confidential

Revenue Cycle Management Denial review & management consists of: • A formal process of continuous improvement designed to identify and correct reasons for claims denial Receivables management consists of: • A formal process for managing outstand receivables which includes both the quantity and quality of receivables • Quantity - DSO (Days Sales Outstanding) • INMD $16. 6 million with 27. 2 DSO • Quality – Aging by buckets • 84% 0 – 60 days • 10% 60 – 120 days • 6% 120 – 180 days © 2012 Integra. Med Fertility Proprietary & Confidential

Benchmarking is the process of evaluating oneself against either: (a) others within the same industry, or (b) oneself over time. © 2012 Integra. Med Fertility Proprietary & Confidential

Benchmarking is the process of evaluating oneself against either: (a) others within the same industry, or (b) oneself over time. Also know as, “How are we doing relative to. . ? ? ? ” © 2012 Integra. Med Fertility Proprietary & Confidential

Benchmarking Inquiry Schedule Show NPV IVF IUI © 2012 Integra. Med Fertility FET Surgery Induction Other No Treatment Proprietary & Confidential

Benchmarking Inquiry Schedule/Inquiry Ratio Schedule NPV/Inquiry Ratio Show/Schedule Ratio Show NPV/Show Ratio NPV IVF IUI © 2012 Integra. Med Fertility FET Surgery Induction Other No Treatment Proprietary & Confidential

Questions? © 2012 Integra. Med Fertility Proprietary & Confidential