Healthcare Concepts We Keep Getting Expensively Wrong

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Everybody loves the word growth.

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Boards love hearing it.

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Investors love hearing it.

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CEOs love saying it.

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We're growing.

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Usually with a chart pointed up and to

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the right.

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But today Larry's latest piece asks a

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dangerous question,

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growing how and growing what exactly?

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Because in healthcare growth often means

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two or more very different things.

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Either the business is actually healthier

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or you bought someone else's revenue and

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stapled it to yours.

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And those are not the same thing.

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Today,

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Larry breaks down how healthcare companies

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confuse acquisition with progress,

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why top line revenue can hide a weakening

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business,

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and the one metric that tells the truth

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when everybody else is busy celebrating.

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So, Larry,

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let's start simple here on the operator.

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You say growth may be the most abused

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word in healthcare business.

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What does most of the industry think

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growth means?

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And then what does it actually mean?

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Well, thanks.

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And Jimmy, keep in mind,

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we're talking about healthcare platform

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businesses.

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I'm not talking about software or SaaS or

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venture capital businesses that have

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growth,

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meaning top line as their primary

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motivator and benchmark.

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I'm not talking about any of them.

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We're talking about healthcare platforms.

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That's the industry when we refer to it

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as that.

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And most of them think growth is when

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the revenue line went up full stop.

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If the number is bigger than it was

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last quarter, that's growth.

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Everybody takes a bow.

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Somebody updates the board deck.

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And it's not necessarily a good thing.

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What it should mean and almost never does

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in practice is that the underlying

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business got healthier.

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So what you want to know is,

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am I having profitable or more likely am

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I having healthy growth?

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More patients, are they choosing you?

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Existing locations,

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are they getting busier?

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Referral relationships, deepening.

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Clinical reputation, is it compounding?

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And that's actual growth.

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It's slower, it's harder to manufacture,

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and it's a lot harder to put in

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a press release than we doubled revenue

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through six acquisitions.

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Or what I see in physical therapy,

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which is ridiculous,

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is they talk about growth of visits.

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as though every visit is a profitable

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visit and that that contributes to the

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bottom line.

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And it's a lot harder

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to do and to analyze.

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And so the industry defaulted to the

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acquisition definition,

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partly because it's faster,

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partly because private equity love to

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funnel roll-ups and partly because nobody

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in the room wants to ask the uncomfortable

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questions, strip out what we bought.

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What did we actually grow?

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Are we healthier?

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That question has a good way of ruining

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celebrations or being buzzkill.

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Well, yeah, it also, you know,

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I feel like you've talked about this

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before.

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It's easy to look on a map.

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You said pins on the map.

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It's very, very,

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it's simple or doesn't mean it's better.

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But let's go back again before we go

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forward.

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Break this down like you're a clinic

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owner,

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a single operator hearing this for the

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first time.

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How do you describe the difference between

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organic and inorganic growth?

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And why do those lines blur?

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Yeah,

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and it's because they differentiate

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between top line and

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And bottom line, Jimmy, are you there?

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Yeah.

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Can you hear me?

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I thought I lost you.

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Let me start that question over.

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Ask it again.

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Yeah, please.

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Yeah.

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All right.

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So let's go back before we go forward.

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Break this down just to make sure we're

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using the same terms.

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Like I'm a clinic director hearing it for

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the first time.

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How do you explain the difference between

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organic and inorganic growth?

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And why did those lines between those two

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terms blur?

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Now that's the ultimate question here is

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organic growth is,

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is your existing business getting more

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business,

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making sure you're not adding it to other

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business you may acquire or even opened.

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You opened ten clinics last year and while

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this year those same ten clinics that you

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had, are they getting busier,

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generating more revenue,

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serving more patients?

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And then is that converting to profitable

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cash flow growth?

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The growth came from the business getting

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better at what it does.

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That is good.

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Inorganic growth is you wrote a check for

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somebody else's revenue.

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You acquired eight more clinics and now

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their revenue is your revenue.

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And so you're adding those together and

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talking and celebrating.

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The total got bigger because you bought

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more total.

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And here's the thing,

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both show up in the same way on

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the top line of revenue.

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One chart, one number,

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one board presentation.

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And the reason organizations blur the two

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together is that blurring them together is

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convenient.

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Organic growth is harder to manufacture on

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a timeline.

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Inorganic growth is a transaction.

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It's an opening of something new.

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You can close a deal faster when you

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build a referral network.

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So the temptation is enormous to let the

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acquired revenue do the talking and not

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make too much out of that distinction.

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The problem is the distinction is

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everything.

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One of the businesses is getting stronger.

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The other one just got bigger.

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Those are not the same thing.

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And all you hear talked about is cocktail

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parties is growth, board decks,

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growth in visits.

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Nobody wants to talk about same store

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organic cash flow growth.

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It's just not a sexy thing to do.

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Right.

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So when a company like acquires twelve

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clinics, doubles revenue,

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everybody celebrates, right?

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But what are the things that you're

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talking about,

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the blurring or the hidden problems that

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can exist underneath in that exact

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dangerous board slide?

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Yes, so much.

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I mean, where do you start?

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You know, first,

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same store revenue at the original

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locations.

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may be flat or declining.

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And that's happening while nobody's

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watching because everybody's focused on

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the integration.

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I mean,

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a classic example is when you open a

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location that's not far from another

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location,

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you expect some form of cannibalism.

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when you do a lot of acquisitions you

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might expect some loss at nearby or

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adjacent locations those are expectations

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you can model them you could pro forma

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them but it's hard to do and it

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takes a lot of diligence a lot of

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detail the acquired clinics almost never

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perform as well as what we call the

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underwriting model so if we buy something

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and we predict or pro forma model it

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things almost never turn out as planned.

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Sometimes they're better.

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Most of the time they're worse.

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And yet the underlying assumptions,

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these rarely get revisited to the board in

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an update.

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Third reason is the debt service on twelve

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acquisitions is starting to consume cash.

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Not only that, your transaction costs,

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you're paying what I call the private

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equity ecosystem, the lawyers,

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the advisors, the tax firms,

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all of those things,

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and that money eats up your capital.

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So the business that generated the growth

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thesis in the first place might be starved

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for capital.

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You might need to buy new equipment,

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new IT,

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integration costs that you have to factor

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into these deals.

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And fourth,

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and this one's personal for me,

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is that clinician turnover usually

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accelerates

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during the acquisition cycles.

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Not because the acquisitions caused it

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directly, but because the culture does.

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People were promised something,

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something changed.

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Maybe it was their health insurance.

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Nobody managed them through it.

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And all of a sudden you've got the

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attention becomes more attention on buying

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things.

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I call it an opiate for a reason,

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because it forces you at an opportunity

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cost to take away from being an operator

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and taking pride in excellence

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and looking at things as they are.

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And if reimbursement is declining or payer

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mix is worsening, denials are rising,

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you could have more visits and a lot

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less cash.

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The board sees the hockey stick in

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revenues and celebrates,

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but the CFO is starting to have quiet

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conversation with the lenders about all

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the cash that is eaten up.

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Right.

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Yeah, the chart looks good,

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but the balance sheet is not looking

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great.

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Can a healthcare company be growing on

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paper while actually getting weaker in

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reality?

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And if so, what are the signs?

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You mentioned a couple right there.

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Yeah, absolutely.

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This is actually the normal pattern before

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a distressed situation, not the exception.

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The company's growing on paper,

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revenue is up, maybe even EBITDA is up,

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but it's up for the wrong reasons right

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up until the moment it isn't.

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And when that happens, it happens fast.

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And the warning signs are the same.

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You have to go looking for it because

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they don't show up on a dashboard or

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a headline.

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Same store revenue at existing locations

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is flat or declining.

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That's the first one.

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If you strip acquisitions out of the

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revenue picture and the line goes flat or

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down, the core business is not growing.

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The growth is actually fooling you.

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And that happens a lot because board

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decks,

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it's easier to show total EBITDA than to

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take every vintage year of your de novos,

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to take every platform,

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your underlying assumptions and how they

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performed over time.

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That's a lot harder to talk about it.

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forces you to get in the weeds and

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boards generally don't like to get there.

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They generally like in many cases to get

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their checks and move on.

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The second though is debt service and that

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can compress you and it eats up a

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lot of the cashflow.

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So while you're generating cash,

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a lot of it is going to the

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private equity ecosystem as well as to

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fund this type of growth.

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So then what happens?

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You start borrowing more and more money.

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It's not a problem when interest rates are

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free,

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but when they're high like they are now,

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it becomes a problem.

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And then the third is all of what

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I'd call the HR interrelated factors,

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culture.

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Clinician turnover starts to accelerate.

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Sometimes that's not a bad thing.

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Sometimes clinicians are now being held

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accountable and they want to be run off.

00:10:01.431 --> 00:10:03.111
They don't like the cultural integration.

00:10:03.692 --> 00:10:05.852
And then the fourth is major integration

00:10:05.913 --> 00:10:06.394
issues.

00:10:06.874 --> 00:10:08.274
Do you have integration talents?

00:10:08.315 --> 00:10:10.135
It's a lot harder to have the competencies

00:10:10.176 --> 00:10:12.496
and skillset around integrating something

00:10:12.537 --> 00:10:13.817
than it is to buy something.

00:10:13.857 --> 00:10:14.738
Is it on schedule?

00:10:15.038 --> 00:10:16.339
What do you integrate first?

00:10:16.359 --> 00:10:17.578
Do you do light integration,

00:10:17.619 --> 00:10:18.480
heavy integration?

00:10:18.860 --> 00:10:20.422
Do you integrate the EMR or do you

00:10:20.461 --> 00:10:21.201
just do payroll?

00:10:21.221 --> 00:10:22.383
Do you just do marketing?

00:10:22.623 --> 00:10:24.105
Do you do talent acquisition and

00:10:24.144 --> 00:10:24.625
recruiting?

00:10:24.664 --> 00:10:25.985
Do you do payer contracting?

00:10:26.407 --> 00:10:28.489
All of those are decisions and most

00:10:28.528 --> 00:10:30.029
healthcare platforms aren't real

00:10:30.049 --> 00:10:30.590
platforms,

00:10:30.629 --> 00:10:32.552
don't make those decisions because they're

00:10:32.631 --> 00:10:35.595
so focused on funneling growth to the

00:10:35.654 --> 00:10:36.855
detriment of their own company.

00:10:37.927 --> 00:10:40.328
You've used that term, same store growth,

00:10:40.369 --> 00:10:42.370
as one of the few honest numbers.

00:10:42.971 --> 00:10:44.871
Explain why to someone who doesn't know,

00:10:45.092 --> 00:10:45.493
like me,

00:10:45.832 --> 00:10:48.654
why that metric matters so much and why

00:10:48.775 --> 00:10:51.857
operators should obsess over same store

00:10:51.878 --> 00:10:52.197
growth.

00:10:52.619 --> 00:10:53.259
Absolutely,

00:10:53.359 --> 00:10:54.779
because it tells you what's actually

00:10:54.840 --> 00:10:55.380
happening.

00:10:55.980 --> 00:10:58.322
You'll notice unprofessional managers,

00:10:58.342 --> 00:10:59.624
they'll say, oh, we're growing.

00:11:00.136 --> 00:11:02.240
And maybe they had an increase in volume

00:11:02.340 --> 00:11:03.481
in two to three percent.

00:11:03.562 --> 00:11:04.363
But at the same time,

00:11:04.383 --> 00:11:06.105
maybe their labor costs, their rents,

00:11:06.166 --> 00:11:08.528
their supplies and everything else went

00:11:08.609 --> 00:11:08.750
up,

00:11:08.789 --> 00:11:12.475
causing margin encroachment and therefore

00:11:12.835 --> 00:11:14.518
their cash flow actually went down,

00:11:14.557 --> 00:11:16.059
but they're calling it growth.

00:11:16.863 --> 00:11:19.083
And that's why it is the pure number.

00:11:19.524 --> 00:11:21.443
Are existing locations busier?

00:11:21.504 --> 00:11:23.085
Is the referral engine getting stronger?

00:11:23.164 --> 00:11:24.524
All these are harder things to do,

00:11:24.544 --> 00:11:26.065
but you have to take the time to

00:11:26.085 --> 00:11:29.166
take it each individual one and compare it

00:11:29.405 --> 00:11:30.206
over time.

00:11:30.567 --> 00:11:31.826
I like to compare it to the last

00:11:31.866 --> 00:11:32.466
twelve months,

00:11:32.506 --> 00:11:33.846
the rolling twelve month average.

00:11:33.888 --> 00:11:35.347
I like to compare it to a variance

00:11:35.408 --> 00:11:35.727
graph,

00:11:35.788 --> 00:11:37.447
a three month over three month variance

00:11:37.467 --> 00:11:37.788
graph.

00:11:38.168 --> 00:11:39.928
And that will tell me based on cash

00:11:39.948 --> 00:11:43.250
flow, visits, total EBITDA and margin,

00:11:43.629 --> 00:11:44.690
Am I really, really grown?

00:11:44.710 --> 00:11:45.291
But you know what?

00:11:45.331 --> 00:11:46.770
That takes a lot of detail and takes

00:11:46.811 --> 00:11:49.312
sophisticated operators to do that.

00:11:49.892 --> 00:11:51.511
Good news is we have AI that can

00:11:51.552 --> 00:11:52.793
model and do a lot of that for

00:11:52.812 --> 00:11:52.952
you,

00:11:53.192 --> 00:11:54.732
but AI is only going to produce the

00:11:54.773 --> 00:11:55.092
data.

00:11:55.312 --> 00:11:56.153
The real question is,

00:11:56.173 --> 00:11:57.494
can you take the data to get the

00:11:57.594 --> 00:11:58.073
insights?

00:11:58.114 --> 00:11:59.854
And then what are your actions off that

00:11:59.933 --> 00:12:00.294
insight?

00:12:00.315 --> 00:12:00.394
Well,

00:12:00.414 --> 00:12:01.855
if your only action is to create a

00:12:02.294 --> 00:12:04.796
very fancy PowerPoint deck for your board

00:12:04.816 --> 00:12:06.015
and tells you how much you're growing,

00:12:06.235 --> 00:12:06.716
you're really,

00:12:07.056 --> 00:12:09.096
really misleading and misrepresenting your

00:12:09.157 --> 00:12:09.537
company.

00:12:09.557 --> 00:12:11.298
You see it every day,

00:12:11.357 --> 00:12:12.738
particularly in PT platforms.

00:12:13.413 --> 00:12:15.414
All right, let's do a hypothetical.

00:12:15.455 --> 00:12:17.738
If you ran a hundred clinic healthcare

00:12:17.778 --> 00:12:20.500
platform tomorrow and you're only allowed

00:12:20.541 --> 00:12:22.283
five numbers on your dashboard every

00:12:22.323 --> 00:12:22.903
Monday morning,

00:12:22.943 --> 00:12:24.385
you could have a snapshot of them,

00:12:24.485 --> 00:12:25.047
what would they be?

00:12:25.952 --> 00:12:26.133
Yeah,

00:12:26.192 --> 00:12:28.433
first I would call it sort of the

00:12:28.494 --> 00:12:30.794
same store revenue growth by location,

00:12:31.154 --> 00:12:33.316
not the total portfolio, but by cluster.

00:12:33.716 --> 00:12:36.236
So that might be organic performance

00:12:36.256 --> 00:12:37.817
within a neighborhood where I got five

00:12:37.856 --> 00:12:39.018
locations, for example.

00:12:39.038 --> 00:12:40.538
You want to break them down individually,

00:12:40.739 --> 00:12:42.698
but it's okay to do it by cluster.

00:12:43.600 --> 00:12:45.960
Did those clinics or did that cluster have

00:12:46.000 --> 00:12:47.620
enough cash to pay what it owes?

00:12:48.221 --> 00:12:49.701
Not EBITDA, cash.

00:12:49.741 --> 00:12:49.861
So

00:12:50.422 --> 00:12:51.202
Revenue growth,

00:12:51.403 --> 00:12:53.966
cash conversion outside of debt.

00:12:53.986 --> 00:12:56.048
So that's sort of the first two.

00:12:56.089 --> 00:12:58.051
The third is the plan of care completion

00:12:58.091 --> 00:12:58.331
rates.

00:12:58.351 --> 00:13:00.354
You and I have gone around on this,

00:13:00.433 --> 00:13:02.336
but our people now,

00:13:03.159 --> 00:13:05.360
eradicating the culture and the focus on

00:13:05.400 --> 00:13:07.140
what patients' outcome are getting.

00:13:07.541 --> 00:13:08.841
Are they finishing their care?

00:13:08.961 --> 00:13:10.001
Are they dropping out?

00:13:10.162 --> 00:13:12.383
It's both a clinical and a financial

00:13:12.423 --> 00:13:13.023
number, really.

00:13:13.423 --> 00:13:14.964
And so you might be getting this growth

00:13:15.004 --> 00:13:15.764
in new patients,

00:13:15.803 --> 00:13:17.144
but you might be getting a growth and

00:13:17.183 --> 00:13:19.725
dropout after the two to three visit cliff

00:13:19.745 --> 00:13:21.645
that you and I have talked about many

00:13:21.706 --> 00:13:22.105
times.

00:13:22.885 --> 00:13:24.607
So that has a revenue leak in it.

00:13:24.648 --> 00:13:26.129
It's one metric, two problems.

00:13:26.509 --> 00:13:27.611
And I would say the fourth would be

00:13:27.652 --> 00:13:29.413
clinician turnover by vintage.

00:13:29.734 --> 00:13:31.596
In other words, what I mean by vintage,

00:13:31.615 --> 00:13:33.177
you would look at pre-acquisition,

00:13:33.238 --> 00:13:34.298
post-acquisition.

00:13:34.759 --> 00:13:36.341
You would also look at it by new

00:13:36.360 --> 00:13:38.023
clinicians first year,

00:13:38.123 --> 00:13:39.845
new clinicians year two to three,

00:13:40.225 --> 00:13:41.206
and then above three.

00:13:41.606 --> 00:13:43.847
What is happening there include voluntary

00:13:43.988 --> 00:13:46.169
and involuntary turnover because the

00:13:46.230 --> 00:13:47.509
unprofessional managers,

00:13:47.549 --> 00:13:50.152
those with the souped up CVs that are

00:13:50.172 --> 00:13:51.913
always in constant talks with their search

00:13:51.932 --> 00:13:53.614
firms, aren't doing that.

00:13:53.673 --> 00:13:55.195
They're only putting on their resume

00:13:55.235 --> 00:13:56.855
growth so that they will get hired by

00:13:56.895 --> 00:13:58.456
another multi-site and talk about what

00:13:58.495 --> 00:13:59.616
great success they had.

00:14:00.037 --> 00:14:00.457
Meanwhile,

00:14:00.498 --> 00:14:03.399
the clinic's mounting debt uncontrollably

00:14:03.458 --> 00:14:04.639
and headed towards restructure.

00:14:05.245 --> 00:14:06.447
Yeah, you see that in LinkedIn pro,

00:14:06.466 --> 00:14:08.009
like I never saw this until maybe two,

00:14:08.049 --> 00:14:08.590
three years ago.

00:14:09.091 --> 00:14:10.232
It's not even just on the resume,

00:14:10.253 --> 00:14:11.895
it's on their LinkedIn profile bio.

00:14:12.826 --> 00:14:14.849
You know, four X exit, you know,

00:14:14.948 --> 00:14:17.110
five times a year over year growth.

00:14:18.111 --> 00:14:19.793
You wrote something sharp in your latest

00:14:21.195 --> 00:14:21.815
operator blog.

00:14:22.075 --> 00:14:24.297
Anyone can look smart in a free money

00:14:24.456 --> 00:14:24.697
era.

00:14:24.798 --> 00:14:26.259
You alluded to that a few minutes ago.

00:14:26.860 --> 00:14:28.681
So when hiring, you know,

00:14:28.921 --> 00:14:30.623
CEOs or executives now,

00:14:31.043 --> 00:14:33.325
how do you tell who's real and who's

00:14:33.365 --> 00:14:35.667
just surfing that cheap debt?

00:14:36.368 --> 00:14:37.708
That's a great question.

00:14:37.749 --> 00:14:39.571
And I look at sort of two types

00:14:39.610 --> 00:14:40.611
of time periods.

00:14:41.253 --> 00:14:43.075
I look at when there was a recession.

00:14:43.654 --> 00:14:45.356
So the last real bad recession we had

00:14:45.397 --> 00:14:47.519
was called kind of a way to nine

00:14:47.578 --> 00:14:48.058
period.

00:14:48.259 --> 00:14:49.760
How did they manage through that?

00:14:49.801 --> 00:14:51.241
Because we've always believed health care

00:14:51.863 --> 00:14:53.403
and dental care to be recession and

00:14:53.684 --> 00:14:54.485
inflation proof.

00:14:55.046 --> 00:14:56.667
We've now shown that that is not correct.

00:14:56.687 --> 00:14:57.668
So that's one period of time.

00:14:58.109 --> 00:14:59.149
And the other one I've talked about

00:14:59.208 --> 00:15:01.171
before, which is post pandemic.

00:15:02.111 --> 00:15:04.052
Talk to me about same store performance

00:15:04.072 --> 00:15:05.674
when everybody got back into the office

00:15:05.715 --> 00:15:07.556
during sort of two thousand twenty two,

00:15:07.876 --> 00:15:09.057
two thousand twenty three.

00:15:09.217 --> 00:15:11.440
Or did the hangover still persist in the

00:15:11.480 --> 00:15:12.880
system and you started to lose a bunch

00:15:12.900 --> 00:15:15.102
of therapists and therefore your margins

00:15:15.123 --> 00:15:17.945
got eroded and therefore your cash flow

00:15:18.004 --> 00:15:20.147
and lever free cash flow went down?

00:15:20.647 --> 00:15:21.288
That's real.

00:15:21.327 --> 00:15:23.149
That's a real good period of time compared

00:15:23.190 --> 00:15:25.171
to say the two thousand nineteen and

00:15:25.230 --> 00:15:25.932
twenty vintage.

00:15:26.373 --> 00:15:28.053
Everybody looks good when money is free

00:15:28.554 --> 00:15:29.755
and multiples are expanding.

00:15:29.796 --> 00:15:30.596
The question is,

00:15:31.528 --> 00:15:33.589
What happened when the conditions got

00:15:33.668 --> 00:15:34.970
really, really difficult,

00:15:35.110 --> 00:15:37.010
when the headwinds became really,

00:15:37.071 --> 00:15:37.990
really strong?

00:15:38.552 --> 00:15:39.812
The second thing I look for is do

00:15:39.831 --> 00:15:41.373
they know the difference between adjusted

00:15:41.432 --> 00:15:43.134
EBITDA and free cash flow?

00:15:43.693 --> 00:15:45.674
And do they lead with the right one?

00:15:46.375 --> 00:15:49.277
Adjusted EBITDA versus free cash flow and

00:15:49.336 --> 00:15:50.477
levered free cash flow.

00:15:50.778 --> 00:15:52.739
An executive who leads every conversation

00:15:52.778 --> 00:15:54.840
with adjusted EBITDA gets evasive when you

00:15:54.919 --> 00:15:56.200
ask about cash conversion.

00:15:56.461 --> 00:15:57.760
That tells you the same story.

00:15:58.061 --> 00:16:00.162
Most CEOs don't even know what the cash

00:16:00.182 --> 00:16:00.883
conversion is.

00:16:01.383 --> 00:16:01.722
And third,

00:16:01.763 --> 00:16:03.224
how do they talk about integration?

00:16:03.303 --> 00:16:04.183
Is it with pride?

00:16:04.224 --> 00:16:05.604
Do they have a team that does it?

00:16:05.984 --> 00:16:08.904
Have they developed competencies over the

00:16:08.924 --> 00:16:11.046
long run based on feedback and how they

00:16:11.086 --> 00:16:12.466
improve it or not?

00:16:12.567 --> 00:16:13.986
For a while in my prior company,

00:16:14.006 --> 00:16:15.668
I had two integration teams that were

00:16:15.707 --> 00:16:16.607
trained by each other,

00:16:16.868 --> 00:16:19.028
got real time feedback by the very groups

00:16:19.068 --> 00:16:20.109
we were partnering with.

00:16:20.989 --> 00:16:22.870
The operators who do all this well can

00:16:22.890 --> 00:16:25.272
tell you exactly if integration broke,

00:16:25.312 --> 00:16:26.692
how it broke, what happened.

00:16:27.373 --> 00:16:28.774
But the ones who surf cheap,

00:16:29.355 --> 00:16:31.576
cheap debt tend to give you a slide

00:16:31.596 --> 00:16:32.397
about synergies.

00:16:32.797 --> 00:16:32.976
Right.

00:16:33.057 --> 00:16:35.057
A smooth sea never made a skilled sailor.

00:16:35.138 --> 00:16:37.299
So you want to know how those people

00:16:37.360 --> 00:16:39.000
navigated the rough waters of.

00:16:39.541 --> 00:16:40.422
of a turbulent time.

00:16:40.981 --> 00:16:42.643
If someone listening runs clinics right

00:16:42.682 --> 00:16:45.764
now and keeps saying we need growth,

00:16:45.825 --> 00:16:47.505
what would you challenge that person to

00:16:47.645 --> 00:16:50.087
ask themselves tomorrow morning before

00:16:50.128 --> 00:16:50.607
they get going?

00:16:51.311 --> 00:16:51.431
Yeah,

00:16:51.451 --> 00:16:53.051
so I'd ask them to reflect and I

00:16:53.071 --> 00:16:55.772
would say at what economic cost and what

00:16:55.831 --> 00:16:57.212
cost to your business.

00:16:57.273 --> 00:16:59.673
Growing companies consume a lot of cash.

00:17:00.092 --> 00:17:03.374
What growth is worthwhile in consuming

00:17:03.413 --> 00:17:04.094
that cash?

00:17:04.413 --> 00:17:07.315
Strip out any clinic you acquired in the

00:17:07.355 --> 00:17:08.194
last two years.

00:17:08.474 --> 00:17:09.996
Now look at the remaining locations.

00:17:10.415 --> 00:17:11.175
Are they busier?

00:17:11.256 --> 00:17:12.957
Are they producing more free cash flow

00:17:12.977 --> 00:17:14.116
than they were the year before?

00:17:14.497 --> 00:17:15.977
Is revenue per location up?

00:17:16.057 --> 00:17:18.178
Is the organic new patient rate improving?

00:17:18.637 --> 00:17:20.298
If the answer to those questions is yes,

00:17:20.338 --> 00:17:20.699
great,

00:17:20.798 --> 00:17:22.078
you understand your business and you're

00:17:22.118 --> 00:17:23.219
growing it, go forward.

00:17:23.499 --> 00:17:25.220
But if the answer is same store is

00:17:25.259 --> 00:17:26.339
flat and negative,

00:17:26.779 --> 00:17:28.461
and the only reason the top line looks

00:17:28.500 --> 00:17:29.580
good is acquisitions,

00:17:29.601 --> 00:17:30.780
then you don't have a growth business.

00:17:31.480 --> 00:17:32.741
You have a buying business.

00:17:32.961 --> 00:17:34.162
Buying businesses are fine,

00:17:34.182 --> 00:17:35.701
but they're completely different risk

00:17:35.721 --> 00:17:36.323
profile.

00:17:37.083 --> 00:17:38.803
They have a different capital requirement

00:17:38.843 --> 00:17:40.243
and completely different set of things

00:17:40.263 --> 00:17:41.064
that can go wrong.

00:17:41.804 --> 00:17:43.744
So I say the question I challenge every

00:17:43.825 --> 00:17:44.465
operator with,

00:17:44.526 --> 00:17:46.527
I challenge myself is what would my

00:17:46.606 --> 00:17:48.868
revenue look like if I couldn't make

00:17:48.909 --> 00:17:50.289
another acquisition?

00:17:51.069 --> 00:17:53.471
Would I focus on my operational excellence

00:17:53.531 --> 00:17:56.193
and pride and tighten my systems and do

00:17:56.273 --> 00:17:57.694
much more with accountability?

00:17:57.974 --> 00:17:59.415
Because that's the actual business.

00:18:00.680 --> 00:18:01.259
You know,

00:18:01.380 --> 00:18:03.981
acquisition buying takes time from

00:18:04.041 --> 00:18:04.662
something else.

00:18:04.682 --> 00:18:06.282
And usually that time from something else

00:18:06.323 --> 00:18:07.522
is solid operation.

00:18:07.864 --> 00:18:09.805
Don't confuse acquisitions with what's

00:18:09.825 --> 00:18:11.244
sitting on the top in terms of your

00:18:11.285 --> 00:18:11.644
revenue.

00:18:12.226 --> 00:18:13.125
That's a great question.

00:18:13.145 --> 00:18:14.807
What would you be doing if you could

00:18:14.866 --> 00:18:16.147
never acquire again?

00:18:16.347 --> 00:18:18.269
The answer is obviously make sure that the

00:18:18.288 --> 00:18:20.250
ship you're on is running smoothly.

00:18:20.650 --> 00:18:20.789
Yeah.

00:18:21.998 --> 00:18:22.178
All right,

00:18:22.198 --> 00:18:23.558
we'll wrap this by saying not all growth

00:18:23.598 --> 00:18:24.319
is progress.

00:18:24.480 --> 00:18:26.500
You can head to Larry Substack right now,

00:18:26.540 --> 00:18:27.082
the operator,

00:18:27.422 --> 00:18:28.942
and sometimes growth is just borrowed

00:18:28.982 --> 00:18:29.403
revenue,

00:18:29.863 --> 00:18:32.184
borrowed time or borrowed confidence

00:18:32.484 --> 00:18:33.826
before maybe someone moves on.

00:18:34.226 --> 00:18:35.606
But if you want sharper thinking on

00:18:35.646 --> 00:18:36.968
healthcare business leadership,

00:18:37.048 --> 00:18:38.169
private equity operators,

00:18:38.648 --> 00:18:41.010
and the numbers people misuse every day,

00:18:41.431 --> 00:18:43.211
subscribe to the operator on Substack.

00:18:43.231 --> 00:18:44.432
You can find the link in the show

00:18:44.452 --> 00:18:44.913
notes here.

00:18:45.193 --> 00:18:46.694
That's where Larry publishes the full

00:18:46.714 --> 00:18:49.296
breakdown and the ideas behind these

00:18:49.355 --> 00:18:49.916
episodes.

00:18:50.096 --> 00:18:51.498
Larry, thanks for the insight.

00:18:52.218 --> 00:18:55.000
absolutely all right you got time to do