Product Line P&L Review

1. Product Line P&L Review Explanation and Detail August 16th, 2006

2. Three Types Of Expenses There are three types of expenses in TSI, that make up the expenses one sees in a profitability Report. They are: Direct Expenses These are the expenses that are found in Cost Centers that generate Revenue, Centers where patients are seen. Indirect Expenses These are the expenses that are found in Cost Centers that do not generate (Patient) Revenue. The expense in these centers are expenses that are necessary to run a hospital, but not to treat patients Directly. Combination Expenses These are the expenses that are found in Cost Centers that do not generate (Patient) Revenue. However, the expenses in these centers are Directly related to services provided to patients.

3. Direct Expenses Direct Expenses These are the expenses that are found in Revenue generating Cost Centers These expenses are generally Salary & Wage Expenses (e.g. a RN on a Nursing Floor) or Supply Expenses (e.g. an Orthopedic implant used in the Operating Room) The expenses can readily be attributable to a procedure in the same department through the uses of standards. Example: Salary and Wage dollars for an RN in a clinic can be based on the “Level Code (CPT)” of a patient. It can be assumed a Level II patients receives twice the attention of Level I patient and so on. Example: X-Ray Film dollars can be allocated for each Radiological procedure based on each procedure’s relative use of film.

4. Indirect Expenses Indirect Expenses A majority of these expenses are found in Cost Centers that do not generate any Patient Revenue. Like the Direct Expenses, these expenses can be Salary & Wage Expenses (e.g. an Accountant in Finance) or Supply Expenses (e.g. plumbing supplies in Maintenance), but they can also be other “classes” like Depreciation Expense or Interest Expense. These expenses CANNOT be readily assigned to a particular procedure in a department. The best allocation that can be done is to allocate these expenses back to the Direct Expense Departments, based on whatever data may be available. Example: Laundry and Linen (an overhead Cost Center) can have it’s expenses allocated back to the Nursing Floors, Emergency Room, Operating Room and other patient care areas based on a statistical measure of Laundry and Linen usage in each of those areas.

5. Combination Expenses Combination (Direct / Indirect) Expenses These expenses have attributes of both Direct and Indirect Expenses. They are similar to Indirect Expenses in that they are from Cost Centers that do not directly generate any Revenue. The expenses can be of any “class” – Salary and Wage, Supplies, etc. The Combination Expenses are similar to Direct Expenses in that they are directly related to services provided to patients. Because the costs can be easily associated with volume or expenses in a Direct Cost Center, that structure can be used to allocate these costs as Direct Costs. Example: Fringe Benefit expenses are allocated to all Direct departments, based on each department’s Salary and Wage totals and procedure by procedure allocation. Example: Dietary (Patient Meals) expenses are allocated to all patients based on their room and board charges. Although, the Room and Board charge is not generated in the Dietary Cost Center, this charge is used to allocate costs to the patient.

6. Direct Expense Allocation TSI Direct Cost MRI Procedure #1 General Ledger Expenses (MRI dept) TSI MRI Department TSI Direct Cost MRI Procedure #2 SMS Volume (MRI Dept) Procedure By Procedure “Standards” TSI Direct Cost MRI Procedure #3

7. Indirect Expense Allocation (Step 1) General Ledger Expenses (Depreciation) TSI Direct Department (MRI) TSI Indirect Department (Depreciation) TSI Direct Department (CT Scan) SMS Or Other Source Allocation Statistic (Depreciation) TSI Direct Department (Operating Room)

8. TSI Indirect Expenses (MRI dept) Indirect Expense Allocation (Step 2) TSI Expenses (Depreciation) TSI Indirect Cost MRI Procedure #1 TSI Expenses (Interest) TSI MRI Department TSI Indirect Cost MRI Procedure #2 TSI Expenses (Finance) Procedure “Standards” SMS Volume (MRI Dept) TSI Indirect Cost MRI Procedure #3