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Transcript

Why Healthcare Platforms Fail (It’s Not Private Equity) · The Operator | Healthcare Business

• 0:00
  Here's the intro.
• 0:03
  Most healthcare platforms don't fail
• 0:05
  because of bad intentions.
• 0:07
  They fail because they repeat the same
• 0:09
  mistakes over and over again.
• 0:11
  Today here on The Operator,
• 0:13
  we're breaking down why healthcare
• 0:14
  platform business models go awry.
• 0:17
  And it's not just in physical therapy.
• 0:19
  This is happening in dental, primary care,
• 0:21
  ortho, everywhere.
• 0:23
  Larry's been watching this for forty
• 0:24
  years.
• 0:24
  Same pattern, rapid growth,
• 0:27
  big valuations and then collapse.
• 0:30
  So today we're getting into why that
• 0:33
  happens and more importantly,
• 0:36
  how to avoid it and learn from the
• 0:37
  mistakes.
• 0:38
  So, Larry, let's start with this.
• 0:40
  You said something in your article that
• 0:41
  really stuck with me and jumped out.
• 0:43
  This isn't a private equity problem.
• 0:45
  It feels like we love to label the
• 0:47
  villains.
• 0:47
  But you you labeled a statistic about five
• 0:50
  percent of private equity.
• 0:53
  You think it's more of an operator
• 0:54
  problem.
• 0:55
  What do most people get wrong about that,
• 0:58
  private equity versus operator?
• 1:00
  Yeah,
• 1:00
  so private equity is a form of financing
• 1:03
  your company.
• 1:03
  It's like bank debt or self-funding or
• 1:06
  going public.
• 1:07
  And in the old days,
• 1:08
  everybody went public,
• 1:09
  even if they didn't have any earnings,
• 1:11
  even in healthcare,
• 1:12
  because it was a form of financing your
• 1:14
  company.
• 1:15
  So PE is financing.
• 1:17
  It's an accelerant.
• 1:18
  It's not an arsonist.
• 1:20
  When a platform fails,
• 1:21
  everybody wants to point at the capital
• 1:23
  structure because it's a clean villain and
• 1:26
  it lets operators off the hook.
• 1:28
  It's like a red herring.
• 1:29
  But I've watched platforms collapse that
• 1:32
  never took a dollar of private equity.
• 1:33
  And I've watched PE backed platforms that
• 1:36
  were reasonably well run.
• 1:38
  The difference was always the same.
• 1:40
  The operator management team alignment
• 1:42
  with their board.
• 1:45
  and all the ecosystem around that.
• 1:47
  Did they build system or did they just
• 1:49
  acquire,
• 1:50
  just use the lever arm of buying
• 1:52
  something?
• 1:53
  Did they hold culture?
• 1:54
  Did they go and let it dilute down
• 1:56
  to nothing?
• 1:57
  PE compresses the timeline and may amplify
• 2:00
  the consequences,
• 2:01
  but the dysfunction exposes,
• 2:04
  the dysfunctions were already there to
• 2:05
  begin with.
• 2:06
  They were just hiding behind cheap cost of
• 2:07
  capital.
• 2:08
  Yeah.
• 2:09
  And it looked good on paper.
• 2:10
  And then in practice,
• 2:11
  it gets pressure tested and then you see
• 2:12
  where the leaks are.
• 2:13
  So let's talk more about this free money.
• 2:15
  You basically said a lot of operators
• 2:17
  looked smart because money was cheap for a
• 2:20
  good ten, twelve year period.
• 2:21
  How much of what we saw over the
• 2:23
  last decade was actually good business
• 2:26
  versus cheap capital hiding those bad
• 2:29
  decisions?
• 2:30
  That's a great question.
• 2:31
  So I kind of,
• 2:32
  for the purposes of this article,
• 2:34
  series of articles,
• 2:35
  divide the world in two.
• 2:37
  If you look back in the day,
• 2:39
  we all believe that healthcare was
• 2:41
  recession-proof.
• 2:42
  People made investments or allocated more
• 2:45
  money towards healthcare platforms because
• 2:47
  it was believed to be resistant against
• 2:50
  any type of inflation.
• 2:51
  Well,
• 2:51
  the reality is when you can't increase
• 2:54
  your prices in response to inflation,
• 2:56
  which is what reimbursement headwinds are
• 2:58
  all about,
• 2:59
  and you have a very over-regulated
• 3:01
  business.
• 3:02
  On top of that,
• 3:03
  you had the effects of COVID,
• 3:05
  which not only brought wage inflation,
• 3:08
  supply inflation,
• 3:09
  it brought immense shortages,
• 3:12
  coupled with operational headwinds that
• 3:14
  really, really created a much,
• 3:16
  much different
• 3:17
  uh organization you had to lay people off
• 3:19
  during covet or they had to take the
• 3:21
  government's money for being laid off all
• 3:23
  of those factors changed the game now
• 3:26
  today what i see is platforms trying to
• 3:29
  operate in a post-coveted environment with
• 3:32
  all of those lever arms being an impact
• 3:36
  like it was pre-coveted money is no longer
• 3:38
  free inflation's effects are very real
• 3:41
  people are now all sudden asking for wage
• 3:44
  reduction
• 3:45
  reimbursement hasn't gone up in fact it's
• 3:47
  gone down fifteen to twenty percent
• 3:49
  depending on which payer you're talking
• 3:51
  about so this takes even better operators
• 3:55
  not blaming the playbook of private equity
• 3:57
  or anybody else all of those things are
• 4:00
  the the real impact right now
• 4:03
  And this is not vertical specific.
• 4:05
  You've seen this across physical therapy,
• 4:08
  dental, primary care, ortho,
• 4:10
  different industries,
• 4:11
  and somehow same failure patterns.
• 4:14
  So why do we let history repeat itself?
• 4:16
  These things play out in public.
• 4:17
  Why do operators keep making the same
• 4:20
  mistakes over and over again,
• 4:21
  even when we have the receipts?
• 4:23
  Yeah, because again,
• 4:24
  they haven't changed their playbook.
• 4:25
  They're operating in a pre-COVID
• 4:27
  environment when it's post-COVID.
• 4:28
  You get access to capital,
• 4:29
  you acquire aggressively,
• 4:32
  You produce impressive unit counts.
• 4:34
  You tell a growth story to whoever will
• 4:35
  hear it, investors, analysts,
• 4:37
  even your own board.
• 4:39
  And you defer the hard organizational work
• 4:41
  because integration is slow,
• 4:43
  it's unglamorous,
• 4:44
  and it doesn't show up in a board
• 4:46
  deck.
• 4:47
  Then the capital environment shifts,
• 4:48
  reimbursement continues to be a problem,
• 4:51
  labor inflation hits,
• 4:52
  and suddenly the structural debt you've
• 4:53
  accumulated all comes due at once.
• 4:56
  We saw it in the nineties with FICOR
• 4:58
  and MedPartners.
• 4:59
  We saw it again in the PE era,
• 5:01
  two point O, so to speak,
• 5:02
  with Stewart and Envision.
• 5:04
  And then CVS and Amazon,
• 5:06
  these are public companies,
• 5:07
  spent billions rediscovering the same
• 5:09
  lessons.
• 5:10
  Thirty years, three eras, I should say,
• 5:13
  one playbook,
• 5:14
  The details changed.
• 5:15
  The outcome really didn't matter.
• 5:19
  And I think I did the series on
• 5:21
  metrics.
• 5:22
  If I was going to go back and
• 5:23
  add one more week,
• 5:24
  it would be around the word growth.
• 5:27
  Because growth means different things to
• 5:29
  different stakeholders.
• 5:30
  And oftentimes,
• 5:32
  growth doesn't mean profitable growth.
• 5:34
  It might just mean revenue growth.
• 5:36
  Well, if you're in an area of software,
• 5:38
  for example,
• 5:39
  where your valuation metrics is top line
• 5:41
  growth,
• 5:42
  That's great.
• 5:43
  But in physical therapy platforms,
• 5:45
  health care platforms,
• 5:46
  it's all based on real cash flow,
• 5:50
  not fake cash flow.
• 5:51
  And growth shouldn't be measured in top
• 5:54
  line because if you're buying things,
• 5:55
  you're naturally going to have for growth.
• 5:57
  That's the same mistake I see these
• 5:59
  unprofessional manager CEOs make.
• 6:01
  They say how much growth they've had.
• 6:04
  But if they have the same amount of
• 6:06
  revenue and they buy something that adds
• 6:09
  revenue to it and you call that growth,
• 6:11
  that is not growth.
• 6:13
  What you have to do is integrate properly
• 6:15
  and make one and one equal two.
• 6:17
  And so you have to have a benchmark
• 6:19
  around your acquisitions that post one
• 6:22
  year or post eighteen months,
• 6:24
  that dollar that you bought is now a
• 6:26
  dollar thirty.
• 6:27
  What's happened in most of these health
• 6:28
  care platforms and even in the public
• 6:30
  companies,
• 6:31
  their dollar that they bought is now worth
• 6:33
  fifty cents.
• 6:35
  And the dollars that it took to buy
• 6:36
  that, the debt on that is suddenly due.
• 6:39
  And most of these businesses on a cash
• 6:41
  flow basis lose money every month.
• 6:44
  All right, if I made you pick one,
• 6:47
  the most dangerous mistake,
• 6:49
  what's the fastest way to break a
• 6:50
  healthcare platform?
• 6:52
  Is it like centralization, compensation,
• 6:55
  disconnection from what the actual product
• 6:57
  is, the clinic floor?
• 6:58
  What is the most dangerous mistake you've
• 7:00
  seen repeated?
• 7:01
  I think the most dangerous mistake is
• 7:03
  cultural erosion.
• 7:05
  Wow.
• 7:07
  When you start terminating founders for no
• 7:09
  reason other than you want to scale,
• 7:11
  when you start taking the entrepreneurial
• 7:13
  zest that got you there away,
• 7:17
  you start to run into no man's land.
• 7:20
  Now, operationally,
• 7:22
  you have to have the blocking and tackling
• 7:23
  right.
• 7:23
  You have to have integration correctly so
• 7:26
  that if you're buying something at a
• 7:27
  dollar a year and a half later,
• 7:28
  it's worth a dollar and a half.
• 7:30
  You have to make sure that your clinicians
• 7:32
  are trained and that you have a
• 7:33
  clinician-centric organization.
• 7:37
  And then you have to have what I
• 7:38
  call a healthy tension between over
• 7:40
  centralization and decentralization.
• 7:43
  You want to put in great systems in
• 7:45
  place to make your therapist or your
• 7:48
  doctors or your dentist be able to
• 7:49
  flourish and thrive clinically.
• 7:52
  No question about it,
• 7:53
  but if you eviscerate them and start
• 7:55
  treating them like widget makers,
• 7:57
  and you start talking about all this scale
• 8:00
  and all of this centralization,
• 8:02
  you just absolutely kill the golden goose.
• 8:05
  And I see that over and over again.
• 8:07
  And when we get to the five dysfunctions
• 8:10
  of all this in the second set of
• 8:12
  articles,
• 8:13
  you'll see that those are the five
• 8:14
  patterns that repeat themselves.
• 8:17
  In the last portion of those top five,
• 8:20
  not a little bit of a spoiler alert,
• 8:22
  is that the financial structure,
• 8:23
  they just have too much debt.
• 8:25
  And so what ends up happening is they
• 8:27
  produce all of their revenues to pay for
• 8:30
  the debt.
• 8:31
  And at some point in time with an
• 8:33
  increased inflation and increased interest
• 8:36
  rates,
• 8:37
  you no longer have dollars beyond what you
• 8:40
  have to pay the debt.
• 8:42
  That decreases your investment.
• 8:44
  It decreases your training of your
• 8:45
  therapist and decreases cultural elements.
• 8:49
  And all those things throw you into no
• 8:51
  man's land and over time dysfunction where
• 8:54
  you then need a lot of restructuring
• 8:57
  because these platforms have gone awry.
• 8:58
  And in physical therapy,
• 9:00
  We've now seen thirty years of that in
• 9:02
  physical therapy.
• 9:03
  I can name you a half a dozen
• 9:06
  companies that got to about the eighty to
• 9:08
  one hundred million in EBITDA range and
• 9:09
  then fell off a cliff.
• 9:11
  All the same patterns.
• 9:12
  Those patterns emerge not just in physical
• 9:14
  therapy and other health care platforms,
• 9:16
  as you'll see in episode two.
• 9:18
  Yeah, good series preview,
• 9:22
  but not just other health care platforms.
• 9:24
  You brought up
• 9:25
  outside of the silo of healthcare, CVS,
• 9:28
  Amazon, Walgreens,
• 9:30
  Rite Aid doesn't exist in my town anymore.
• 9:32
  Some of the smartest companies, you know,
• 9:34
  smartest companies in the world,
• 9:35
  and they still struggled.
• 9:38
  What did they misunderstand about
• 9:40
  healthcare?
• 9:42
  It's interesting.
• 9:43
  For many, many years,
• 9:45
  going back twenty years,
• 9:46
  I remember sitting around a table and a
• 9:47
  lot of really good executives would say,
• 9:49
  you know,
• 9:49
  the best and brightest companies in the
• 9:51
  world, the Microsofts of the world,
• 9:54
  the Dell computers of the world.
• 9:56
  Now you would say NVIDIA and Google and
• 9:59
  all those.
• 9:59
  You say,
• 10:00
  why don't the great technology companies
• 10:02
  get into health care?
• 10:04
  Well, there's a reason they don't.
• 10:06
  The few that have tried,
• 10:07
  Amazon is one that has tried and is
• 10:09
  continuing to try.
• 10:10
  Remember that one of their first
• 10:12
  acquisitions years ago was drugstore.com
• 10:14
  or something like that,
• 10:15
  and that completely failed,
• 10:17
  is they seriously discount the regulatory
• 10:20
  environment that healthcare.
• 10:21
  When you have technology and you have all
• 10:23
  of these things going on,
• 10:26
  It's anti-regulation.
• 10:27
  Well, when you get into health care, it's,
• 10:29
  you know, other than nuclear power plants,
• 10:31
  it's the most regulated environment and
• 10:34
  they discount that and you can't.
• 10:36
  Everybody thinks everybody else's industry
• 10:38
  is easy.
• 10:39
  And so primary care was thought to be,
• 10:41
  you know,
• 10:42
  everybody was going to get into primary
• 10:44
  care,
• 10:45
  even the financial companies thought.
• 10:48
  formed a sector.
• 10:49
  If you remember when JP Morgan and these
• 10:51
  others did it, it all failed.
• 10:53
  It's just a very,
• 10:54
  very difficult business because there's a
• 10:56
  lot of blocking and tackling.
• 10:58
  And I think at the end of the
• 10:59
  day,
• 10:59
  it's because it's a relationship and it's
• 11:01
  a people business.
• 11:02
  You can't replace people with technology
• 11:05
  from a hands-on delivery of health care.
• 11:08
  And while you might have adjuncts through
• 11:10
  AI and radiology, for example,
• 11:12
  or you might be able to use AI
• 11:14
  to help you on your documentation or even
• 11:16
  help you on your diagnosis,
• 11:18
  it's still a people-to-people business.
• 11:20
  And I think that they forget that.
• 11:22
  It's not easy.
• 11:24
  As our current president said,
• 11:26
  it's complicated.
• 11:28
  It's so simple when you're just at dinner
• 11:30
  on the back of a napkin saying,
• 11:32
  here's how you fix your entire industry.
• 11:34
  Let me map it out for you.
• 11:35
  Unless you've sat inside it,
• 11:37
  it might look simple, but it's not easy.
• 11:39
  It is complicated.
• 11:41
  So then let's flip it.
• 11:42
  What are the platforms that actually work
• 11:44
  do differently?
• 11:45
  What are the people who do it well?
• 11:47
  What's their secret sauce or what do they
• 11:48
  look at and do well?
• 11:50
  Yeah, said simply,
• 11:52
  buying things is not a very difficult
• 11:55
  competency, right?
• 11:56
  You don't need to train a kid to
• 11:58
  go to a candy store and buy things.
• 12:00
  You don't need to train an adult
• 12:02
  businessman to buy a business.
• 12:03
  You can develop those competencies rather
• 12:06
  easily.
• 12:07
  The more difficult work is integration.
• 12:10
  And so the successful companies treat
• 12:12
  integration as an actual work product.
• 12:14
  They take pride in it.
• 12:15
  They see benchmarks around it.
• 12:17
  They have dashboards around it.
• 12:19
  The acquisition is just how you get across
• 12:21
  the raw material.
• 12:22
  The platforms that work,
• 12:23
  and there are some,
• 12:24
  are obsessive about the period right after
• 12:27
  an acquisition.
• 12:29
  When we did acquisitions,
• 12:30
  when I was running it,
• 12:32
  we did them over an eighteen month period.
• 12:35
  because we believe that you integrate
• 12:37
  slowly not quickly you onboard a practice
• 12:41
  in your culture just like you onboard a
• 12:43
  new employee you do that with without
• 12:46
  destroying what made it valuable in the
• 12:49
  first place i remember bill samuels of
• 12:52
  makers mark always saying it you know
• 12:54
  don't screw up the whiskey
• 12:56
  You know,
• 12:57
  you can be as big as you want
• 12:59
  as a whiskey company.
• 13:00
  But if you start messing with the formula,
• 13:02
  you're going to screw it up.
• 13:04
  That's what we tend to do in the
• 13:05
  health care platforms.
• 13:06
  But the ones that are successful have
• 13:08
  compensation models that were designed
• 13:10
  with clinical input and they get revisited
• 13:12
  regularly.
• 13:13
  You know, they don't.
• 13:15
  commoditize and widget maker.
• 13:17
  They don't fire founders.
• 13:18
  They don't fire entrepreneurs.
• 13:20
  And the leadership is very real structured
• 13:22
  mechanisms for hearing from what I would
• 13:24
  call the clinical floor, not a survey.
• 13:26
  I really do believe whether you're a
• 13:29
  baseball manager owner,
• 13:30
  you ought to be player centric.
• 13:32
  If you're a healthcare platform owner,
• 13:34
  you ought to be dentist centric,
• 13:36
  doctor centric, clinician centric,
• 13:39
  because
• 13:40
  Those are your golden goose.
• 13:41
  Those are the only way you make money
• 13:43
  is through the revenues that they produce,
• 13:45
  through the pen that they write
• 13:47
  prescriptions in if it's a physician,
• 13:49
  not a town hall.
• 13:50
  So you have to get down to the
• 13:52
  business there and have operational
• 13:55
  accountability that connects us to what's
• 13:56
  happening in the exam room.
• 13:58
  not the other way around.
• 14:00
  None of this, by the way, is magic.
• 14:01
  It's just really hard work.
• 14:03
  And it doesn't make for a great investor
• 14:05
  narrative,
• 14:06
  which is probably why it's so rare.
• 14:08
  You always want the shiny board decks
• 14:10
  talking about growth,
• 14:12
  not about integration or success or making
• 14:15
  a dollar equals a dollar and twenty a
• 14:18
  year later.
• 14:20
  All right, time for a quick segment.
• 14:21
  This is called operated.
• 14:23
  See what I did there?
• 14:24
  Operated.
• 14:24
  We're going to do a quick overrated,
• 14:26
  underrated segment.
• 14:28
  All right, so I'll throw out a term.
• 14:29
  You tell me whether it's overrated or
• 14:31
  underrated.
• 14:32
  Private equity in health care.
• 14:34
  Would you overrate that or is it
• 14:35
  underrated?
• 14:36
  Grossly underrated.
• 14:37
  Without private equity in healthcare,
• 14:39
  you wouldn't have access to healthcare
• 14:42
  like you do now.
• 14:43
  You wouldn't have well-funded technology
• 14:45
  companies that have good EMR products.
• 14:47
  You wouldn't have supply chain issues.
• 14:50
  You wouldn't have a bunch of hospitals
• 14:52
  across the country.
• 14:53
  So seriously underrated.
• 14:55
  It's a small portion of a big picture,
• 14:57
  like five percent,
• 14:58
  but it is generally regarded in a critical
• 15:01
  way, unfortunately.
• 15:03
  How about EBITDA as a success metric?
• 15:05
  If you've listened before,
• 15:06
  I think you know the answer here.
• 15:07
  The answer is it's grossly overrated.
• 15:10
  EBITDA is a result, not a lead generator.
• 15:15
  It's a lag indicator.
• 15:18
  Centralized decision-making.
• 15:22
  It is grossly overrated.
• 15:25
  If you have centralized decision-making,
• 15:27
  you do not have a successful company.
• 15:28
  You have to have a healthy tension between
• 15:30
  what occurs centrally and decentrally.
• 15:33
  Founder-led clinics,
• 15:35
  overrated or underrated?
• 15:36
  Underrated, underrated.
• 15:38
  You could look at any business,
• 15:39
  as you'll see in part two,
• 15:42
  and you're going to get four to five
• 15:43
  hundred basis point of margin improvement
• 15:46
  when you have a local partner.
• 15:48
  Growth through acquisition,
• 15:51
  overrated or underrated?
• 15:53
  overrated because it's the natural
• 15:56
  default.
• 15:57
  The default should be organic growth,
• 16:00
  same store,
• 16:01
  but that doesn't make for shiny board
• 16:03
  decks.
• 16:04
  Everybody wants to buy a new shiny object.
• 16:06
  And my belief in the way I run
• 16:09
  things is if you can't show organic
• 16:11
  growth,
• 16:11
  you shouldn't be in the business of buying
• 16:13
  things because all you're going to do is
• 16:14
  ruin them.
• 16:15
  Yeah,
• 16:15
  you don't have to teach a kid how
• 16:16
  to walk into a candy store and buy
• 16:17
  stuff.
• 16:19
  I learned that real quick.
• 16:21
  Final overrated, underrated,
• 16:22
  professional managers running clinics.
• 16:26
  Overrated?
• 16:27
  I think the term professional managers has
• 16:31
  really now become tricked up resumes by
• 16:34
  search firms.
• 16:36
  And there's absolutely nothing wrong with
• 16:38
  engaging with professional managers.
• 16:41
  But what has happened is we've put so
• 16:43
  much weight
• 16:44
  into thinking people are professional
• 16:46
  managers.
• 16:47
  And I can give you more examples of
• 16:48
  where they've ruined companies than where
• 16:50
  they've helped them and healthcare
• 16:51
  platforms doesn't mean there isn't some
• 16:53
  unbelievable platforms being run by so
• 16:56
  called professional managers.
• 16:58
  But give me a business where you got
• 17:00
  your entrepreneur founders involved in
• 17:02
  some capacity, offsetting strengths,
• 17:05
  all of those kinds of things.
• 17:07
  And I'll show you a business that is
• 17:09
  likely failing.
• 17:11
  Now, show me how this shows up.
• 17:13
  How does decision-making getting
• 17:15
  disconnected from the clinical floor
• 17:18
  actually show up in real life?
• 17:19
  What does it actually look like?
• 17:21
  How do you spot it?
• 17:23
  Yeah,
• 17:24
  so what happens is you commoditize your
• 17:27
  providers.
• 17:28
  And so what professional managers tend to
• 17:31
  do, and again,
• 17:32
  there are some terrific ones,
• 17:33
  so I'm spitballing here and kind of
• 17:35
  generalizing.
• 17:36
  But what I've seen in most healthcare
• 17:37
  platforms is over time,
• 17:40
  they think all providers are stupid.
• 17:42
  They think all providers should be doing
• 17:43
  nothing but generating revenue,
• 17:45
  seeing patients,
• 17:46
  maximizing their efficiency,
• 17:49
  making as much coffee as they can.
• 17:51
  When the reality is the impacts,
• 17:54
  the pressures that a clinician has every
• 17:58
  day between patients and insurance
• 18:00
  companies and EMRs and the regulatory side
• 18:04
  of it.
• 18:04
  And these folks have lives.
• 18:06
  And it's very, very difficult.
• 18:07
  It's why burnout exists in part,
• 18:09
  because you have so much externality
• 18:12
  pressuring them through the so-called
• 18:14
  efforts of professional managers.
• 18:16
  When you engage in a collaborative
• 18:17
  process.
• 18:18
  So here's what some professional managers
• 18:19
  do.
• 18:19
  They'll name a chief clinical officer.
• 18:22
  You know, that is their poster child of,
• 18:24
  oh, we're very clinically oriented.
• 18:25
  And in fact, our chief clinician officer,
• 18:27
  he's hooked at the hip with our COO.
• 18:30
  And it's all bullshit.
• 18:31
  It is all just a,
• 18:33
  it's all to make a shiny board deck.
• 18:36
  Look at the results.
• 18:37
  The results are what matter.
• 18:38
  If you have a results-oriented work
• 18:40
  environment around a solid culture built
• 18:42
  around your clinicians with good basic
• 18:44
  blocking and tackling and fundamentals,
• 18:47
  The metrics around health care are not
• 18:48
  that difficult.
• 18:49
  The execution is extremely difficult.
• 18:52
  And we oftentimes do not apply common
• 18:54
  sense in common practice.
• 18:56
  And those things in aggregate are what
• 18:58
  ruin health care platforms,
• 19:01
  as you'll see the evidence in part two.
• 19:04
  Compensation gets brought up a lot.
• 19:06
  You can make a big mistake there and
• 19:08
  it can hurt you for a while and
• 19:09
  you might not be able to recover.
• 19:10
  So what are the biggest compensation
• 19:12
  mistakes you see that end up driving
• 19:14
  clinicians away?
• 19:16
  yeah so we we tend to make centralization
• 19:19
  decisions around bonuses and compensation
• 19:21
  because it's easier for finance accounting
• 19:24
  legal and hr team you should make
• 19:26
  decisions based off ease for your
• 19:28
  administrative team you should make
• 19:30
  decisions based off the best alignment
• 19:33
  with your clinicians so we base it on
• 19:36
  units or visits or something that drives
• 19:38
  volume
• 19:40
  never wondering whether or not payer mix
• 19:42
  makes any difference,
• 19:43
  whether or not this clinician has more
• 19:45
  patients that have higher comorbidities or
• 19:47
  higher complications.
• 19:49
  I do believe that the doctoring
• 19:51
  professions ought to have the clinicians
• 19:54
  making the most money,
• 19:56
  through their ability to receive a
• 19:58
  percentage of the compensation that they
• 20:00
  produce.
• 20:01
  Now,
• 20:01
  I'm not saying that as a day one
• 20:02
  clinician, so you have to have a,
• 20:04
  you know, a guarantee, if you will,
• 20:06
  a safety net as an onboarding because
• 20:08
  clinicians are graduating from schools
• 20:10
  post-clinicians and they need more and
• 20:12
  more training.
• 20:13
  So you have to upskill them and give
• 20:15
  them that year, year and a half,
• 20:16
  whatever it may be,
• 20:18
  so that you're not tying their
• 20:20
  compensation.
• 20:21
  You're giving them a guarantee,
• 20:23
  just like we do in a lot of
• 20:24
  other businesses.
• 20:25
  And then after that point,
• 20:28
  The way the clinicians generate their
• 20:30
  revenue is through their care.
• 20:32
  And if they're good care,
• 20:33
  they'll get good word of mouth,
• 20:35
  good patients,
• 20:35
  and they ought to receive a percentage of
• 20:37
  that.
• 20:37
  Right now, what we have,
• 20:39
  particularly in physical therapy,
• 20:40
  is you pay clinicians to progress and pay
• 20:44
  them more to get out of clinical work.
• 20:47
  We have the highest percentage of
• 20:48
  clinicians not doing clinical work in
• 20:50
  physical therapy than any other so-called
• 20:52
  ancillary that I've seen.
• 20:53
  We only have twenty to twenty five percent
• 20:55
  on an FTA basis of PTs actually treating
• 20:57
  patients.
• 20:58
  Why?
• 20:58
  Because we pay them more not to treat
• 20:59
  patients.
• 21:00
  That has to be reversed.
• 21:02
  We want to be a doctoring profession,
• 21:04
  but we don't want the responsibility,
• 21:05
  the compensation models.
• 21:08
  And a lot of this I blame on
• 21:10
  professional managers.
• 21:11
  Most clinicians I know after a while want
• 21:13
  to be on.
• 21:15
  within their own private practice of a
• 21:16
  practice, right?
• 21:18
  But, you know,
• 21:19
  the system doesn't let them because the
• 21:21
  metrics and the operating platform are
• 21:23
  built around ease and shiny books and
• 21:25
  boardrooms.
• 21:26
  They're not built around what's best for
• 21:28
  the long-term sustainability of the
• 21:29
  practice.
• 21:31
  What's your final shot?
• 21:33
  What's the thing you hope people take away
• 21:34
  from not only this first article,
• 21:37
  but from the series if they read through
• 21:39
  it?
• 21:40
  Examine your own company based on the five
• 21:42
  dysfunctions.
• 21:43
  How are you performing?
• 21:45
  If that can change over time,
• 21:47
  it could really benefit you.
• 21:48
  It's all about the conversation and
• 21:50
  raising the sensitivity level.
• 21:52
  And why repeat these historical patterns
• 21:54
  of failure?
• 21:56
  The only way you can,
• 21:58
  you know,
• 21:58
  mitigate that is by having a check and
• 22:01
  balance system, having people push back,
• 22:04
  having people question things,
• 22:06
  all progress is made through deliberation,
• 22:09
  debate and debate.
• 22:11
  And you have to have that within an
• 22:12
  organization.
• 22:13
  And you have to have people pushing back
• 22:15
  against, you know,
• 22:16
  a so-called professional manager.
• 22:17
  Why are you firing founders and
• 22:19
  entrepreneurs?
• 22:20
  Just because you want to scale, you know,
• 22:22
  why are you making these great claims and
• 22:24
  hiding behind them and calling growth,
• 22:27
  growth when our free cashflow isn't,
• 22:29
  isn't you know, what it should be?
• 22:31
  Why are we not making the investments in
• 22:33
  clinicians?
• 22:33
  Because our, our,
• 22:35
  our cash is now tied up and paying
• 22:36
  the interest on the debt,
• 22:38
  not even the principal on the debt those
• 22:40
  kinds of things.
• 22:42
  I think one main takeaway is healthcare is
• 22:44
  not like other industries.
• 22:45
  You can't fix it with money, scale,
• 22:47
  or spreadsheets.
• 22:48
  And to be honestly successful long-term,
• 22:50
  you need stronger operators who understand
• 22:53
  both the business and the whiskey, sorry,
• 22:56
  clinical side, don't screw up the whiskey,
• 22:58
  who build the systems that support,
• 23:00
  not replace the people delivering care.
• 23:02
  The fact that- And in today's
• 23:05
  post-inflationary world,
• 23:08
  you cannot operate the business the same
• 23:10
  way you did today like you did pre-COVID.
• 23:13
  And you have to mitigate against the
• 23:14
  dysfunctions that cause you to fail,
• 23:16
  but you also have to have better people
• 23:18
  around.
• 23:18
  You have to have better board members,
• 23:19
  not these so-called professional board
• 23:21
  members that hop anywhere.
• 23:23
  Not because somebody invested a lot of
• 23:25
  money and they have a trust fund that
• 23:26
  allows them to be there,
• 23:27
  but they bring you nothing in terms of
• 23:29
  experience or expertise.
• 23:31
  And you have to have a healthy
• 23:32
  conversation around what works.
• 23:36
  So if you're building or thinking about
• 23:38
  building a healthcare platform, this,
• 23:39
  what we talked about today and the rest
• 23:41
  of the writing is the stuff that actually
• 23:42
  works, not just growth,
• 23:43
  not just valuation,
• 23:44
  but whether the thing actually works.
• 23:47
  If this hit,
• 23:48
  share it with someone building in
• 23:49
  healthcare.
• 23:50
  And if you want more of this thinking,
• 23:51
  we'll give you the link to Larry's
• 23:52
  Substack, the operator.
• 23:54
  That's where these ideas live first.
• 23:57
  Thanks, Larry.
• 23:57
  Thank you, Matt.