The Five Dysfunctions That Keep Killing the Same Platforms

WEBVTT

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All right,

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last time we talked about why healthcare

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platforms fail,

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and the headline surprised a lot of

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people.

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It got people very, very fired up,

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maybe because they didn't listen long

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enough.

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It's not private equity,

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it's not the ownership model,

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maybe it's the operators.

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So today we're gonna go deeper.

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Larry just dropped part two of this

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series.

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And this is where it gets uncomfortable

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because now we're not talking theory.

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We're talking about actual dysfunctions

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that keep blowing these things up.

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History keeps repeating themselves.

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Five of them.

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And the scary part,

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we've seen all five before.

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And we're still repeating them,

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just like history.

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So today we're breaking down where

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platforms actually go wrong and why smart

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people keep making the same mistakes and

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what the few operators who get it right

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are doing differently.

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So Larry, let's get into it.

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You said something that stuck with me.

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Failure is financing agnostic.

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That was the thing I think a lot

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of people last week said.

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when they heard you say,

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PE isn't the bad guy.

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They didn't stick around long enough to

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maybe go deeper.

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Maybe that's the trick.

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But if it's not private equity,

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then what actually is the root problem

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here?

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Yeah,

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so the root problem is that we keep

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treating American health care services

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like it's a scalable,

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dehumanized business product.

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And it isn't.

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CVS had ten point six billion.

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Amazon had effectively unlimited capital.

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Walgreens had the biggest national

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distribution infrastructure than any P

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firm would ever have.

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They were all three public,

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and they all walked into primary care with

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resources that would make any private

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equity sponsor blush.

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All three ended up with impairment

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charges, clinic closures,

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full dismemberment within three years.

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So if the answer were just getting better

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financing,

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then those three would have certainly

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figured it out.

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But the actual problem is structural.

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Healthcare is a relational,

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locally embedded reimbursement constrained

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and clinician dependent.

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Those are sort of four characteristics and

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they don't respond to capital the way that

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a consumer product or say a logistic

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business does.

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You can't centralize your way past them.

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You cannot acquire your way past them.

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You cannot hire sort of a McKenzie or

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a Bain team to optimize your past.

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They're optimized.

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You pass them at all.

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And the platforms that forget this,

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regardless of who's writing the check,

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end up in the same place.

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History does have a way of repeating

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itself,

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which is why I keep saying the financing

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is the accelerant, not the arsonist.

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Right.

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But it sometimes is the most visible.

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So we blame the most visible.

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You mentioned that word over

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centralization.

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My previous career was in broadcasting.

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We saw this.

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If you could manage one radio station,

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why not a hundred?

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Why not a thousand?

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You call over centralization the original

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sin.

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Why does something like that that looks

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like good management end up killing

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platforms in health care?

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Because it sort of feels like good

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management right up until it does it.

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When the platform is scaling fast and the

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acquisition pipeline is full and the

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EBITDA is growing, centralizing HR,

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finance and clinical protocols look like

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an operational discipline.

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It looked like a demand.

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It looked like a necessity, a default.

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but it looks like professionalizing a

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fragmented cottage industry.

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That's what we are as a cottage industry.

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It looks exactly what boards are asking

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for,

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but what's happening is you're dismantling

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the thing that makes the practice

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valuable.

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a patient's relationship with their

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hygienist, their PT,

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their primary care doctor.

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That's the product.

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The product is the relationship,

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the intangibles, the thing that is very,

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very difficult to scale and to quantify.

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That relationship is local, it's personal,

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and it also took a long time or

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years to build.

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The moment you start optimizing it from a

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corporate office four states away,

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you're not running the business better.

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You're consuming the business.

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And by the time the revenue trend makes

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that visible,

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the founders are already gone.

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The culture is already hollowed out.

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And you're trying to hire your way back

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to something that you destroyed on a

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spreadsheet.

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You know,

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if you look at the sort of the

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Harvard postmortem on Steward,

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they named it explicitly.

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Failure to invest in patient care combined

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with financial engineering that extracted

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value instead of building it.

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That's centralization's end state when it

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goes wrong.

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Five hospitals closed,

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five thousand workers displaced,

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a CEO dodging a Senate subpoena.

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That's where like looks like good

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management eventually goes.

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So then at what point does a platform

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cross the line?

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If I could manage one and then five

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okay,

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maybe this is a fair or unfair question,

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at what point does it cross the line

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from helpful infrastructure and

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centralizing thing to actually,

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what you just said,

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dismantling what actually made the

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business valuable?

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Yeah, it evolves over a process.

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It starts out...

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honoring the clinician,

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it ends up treating them like widget

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makers,

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that they're just fungible commodities.

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So that line is crossed when the local

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operator loses what I call real authority,

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not influence, authority,

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decision-making processes.

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There's a difference.

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Shared infrastructure at times makes

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sense.

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Billing, credentialing, supply chain,

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marketing, technology,

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nobody needs

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EMR implementations across a platform.

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That's legitimately more efficient and it

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frees up clinical time.

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I've got no argument with that.

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But the line gets crossed when the

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decision on how many patients a clinician

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sees and

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what they're being paid for seeing them

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and what the patients see which patients

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they see in terms of payer mix and

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whether that practice keeps the culture

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that they built because all of a sudden

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central management starts sending things

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out and they say you have to see

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this many patients you're doing this much

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you have to do this you have to

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adopt this and those decisions then

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migrate they could migrate even to a you

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know regional operator or a ceo who's

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never treated a patient

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That's when they've stopped building

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infrastructure on the clinical business

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and they started replacing the clinical

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business with a management layer.

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So that's how that thing evolves.

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The patients eventually figured out,

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referral sources figured out,

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and then the clinicians figure out and

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they leave.

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They go down to something better.

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It's usually in that order, by the way.

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Yep.

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And then the thing that made you valuable

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walks out the door and you're confused as

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to what happened.

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Yeah.

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You've said misaligned compensation isn't

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a bug.

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It's a feature.

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This is super zoomed in.

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We've seen this a lot.

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We had a discussion before about KPIs when

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you're aiming at a target that isn't

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valuable in the long term.

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So what are these systems actually

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incentivizing clinicians to actually do?

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Yeah,

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so this is a key out of the

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five dysfunctions.

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It's the effectively misaligning

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compensation.

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And it's two things, and they're both bad.

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The first is what I'll call the

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volume-driven model, revenue per visit,

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daily patient counts,

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units per billing targets,

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where you explicitly tell clinicians that

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more is better,

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regardless of what the patient actually

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says.

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is coming in on that particular day so

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you get treatment center you know you get

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these sort of treatment sessions

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structured around maximizing time billing

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codes rather than clinical outcomes it

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shifts the incentive shifts from the love

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and meaningful work of seeing patients to

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external numbers units time codes all

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those kind of things

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And the clinicians who take on these cases

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have to because the schedule demands it.

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They try to optimize the schedule.

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You get throughput, if you will,

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disguised as sort of productivity.

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And then burnout isn't a side effect of

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that system.

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It's the logical output of asking sort of

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a doctoral-level professional to function

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like a widget in an assembly line.

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Again,

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it's that migration of the business into a

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model system

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of manufacturing, if you will,

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rather than relating it's a people

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business all about the relationships.

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The other,

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the second failure is the flat salary

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model.

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Oh, we're going to pay our therapist X.

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Oh,

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and then the new class comes in a

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year and they're going to say,

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we're going to pay them X plus ten.

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Well, guess what?

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And then they go back to the other

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X and have to ten up them.

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And this is really popular more in the

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physical therapy and the dental hygiene

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space.

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We build professionals where the only way

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you can increase your income is to stop

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seeing patients move into management.

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So our best clinicians,

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the ones with the deepest clinical skills

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and the strongest patient relationships,

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are now economically incentivized to

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become a regional manager.

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They're incentivized to leave clinical

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practice as soon as it's possible.

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Then we run studies wondering why we have

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workforce shortages.

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Between two thousand twenty three and two

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thousand twenty four on the physician

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side,

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union petitions surged nearly nine hundred

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percent,

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nine hundred percent in a profession that

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spent decades philosophically opposed to

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collective bargaining.

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They were against unions.

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When you see that number,

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that really implies that the compensation

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dysfunction isn't sort of theory.

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It's producing,

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it's really a structural argument,

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structural response.

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Let's talk about this other problem that

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you brought up, this altitude problem.

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Decisions getting made further and further

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from the clinical floor,

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where that business,

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the value that the organization provides

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actually happens.

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What's the real cost of that disconnect,

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that altitude problem?

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Yeah,

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the real cost is that by the time

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bad decisions become visible as the

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revenue line,

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the damage has been in process for like

00:10:17.178 --> 00:10:18.399
a year to a year and a half.

00:10:18.840 --> 00:10:20.139
That's sort of a lag period,

00:10:20.179 --> 00:10:21.179
twelve to eighteen months.

00:10:21.779 --> 00:10:25.081
A CFO who's never seen a physical therapy

00:10:25.140 --> 00:10:27.822
episode designs a productivity metric.

00:10:27.942 --> 00:10:29.682
A compensation committee that's never

00:10:29.721 --> 00:10:31.942
worked in a clinical environment sets a

00:10:31.982 --> 00:10:32.623
pay structure.

00:10:33.688 --> 00:10:35.909
all these for doctoral you know

00:10:35.950 --> 00:10:38.471
professionals a regional director whose

00:10:38.511 --> 00:10:40.312
entire health care background is a

00:10:40.393 --> 00:10:42.234
consulting engagement or maybe they worked

00:10:42.274 --> 00:10:44.215
in a multi-site and worked their way up

00:10:44.774 --> 00:10:46.576
and it's all clinical efficiencies you

00:10:46.596 --> 00:10:48.636
know from a spreadsheet none of these

00:10:48.876 --> 00:10:51.097
decisions produce an immediate sort of

00:10:51.158 --> 00:10:53.578
catastrophic event it happens over time a

00:10:53.639 --> 00:10:56.441
slow degradation of clinical engagement

00:10:56.760 --> 00:10:57.682
patient experience,

00:10:57.721 --> 00:10:58.903
referral relationships,

00:10:59.342 --> 00:11:01.563
and a real bigaboo, retention.

00:11:01.985 --> 00:11:03.946
And by the time that degradation shows up

00:11:03.966 --> 00:11:04.546
in the numbers,

00:11:04.586 --> 00:11:07.587
the people who made those decisions have

00:11:08.828 --> 00:11:09.870
oftentimes moved on.

00:11:09.889 --> 00:11:11.870
They've had souped up, tricked up resumes,

00:11:11.910 --> 00:11:12.892
worked with search firms.

00:11:13.272 --> 00:11:14.832
I've had now success and growth in a

00:11:14.873 --> 00:11:16.193
multi-site and they move on.

00:11:16.854 --> 00:11:18.995
I call that the altitude problem because

00:11:19.015 --> 00:11:20.836
the higher the decision that gets made,

00:11:20.856 --> 00:11:21.977
the less grounded it is.

00:11:22.398 --> 00:11:23.958
and the reality of where that care

00:11:23.999 --> 00:11:25.799
actually happens at the clinic.

00:11:26.360 --> 00:11:27.701
And in health care services,

00:11:27.801 --> 00:11:30.883
the care is the business.

00:11:31.342 --> 00:11:32.884
Everything else is supportive

00:11:32.903 --> 00:11:33.563
infrastructure.

00:11:33.984 --> 00:11:35.705
When the supportive infrastructure starts

00:11:35.784 --> 00:11:38.427
making business decisions about the care

00:11:38.447 --> 00:11:39.868
without understanding the care,

00:11:40.408 --> 00:11:41.869
you've inverted the model,

00:11:42.149 --> 00:11:44.230
and that in itself is a symptom of

00:11:44.250 --> 00:11:44.990
the dysfunction.

00:11:45.390 --> 00:11:47.111
The tail is now wagging the dog,

00:11:47.131 --> 00:11:48.711
and the dog is the part that actually

00:11:48.772 --> 00:11:49.732
generates the revenue.

00:11:49.996 --> 00:11:51.418
Yeah, let's get even scarier.

00:11:51.438 --> 00:11:52.679
Let's bring in Frankenstein to this

00:11:52.740 --> 00:11:53.059
equation.

00:11:53.080 --> 00:11:53.980
You've described what you call

00:11:54.061 --> 00:11:55.221
Frankenstein network,

00:11:55.842 --> 00:11:57.605
where many platforms prioritize

00:11:58.004 --> 00:12:00.248
acquisition, buying new things,

00:12:00.447 --> 00:12:04.011
absorbing things over actually integrating

00:12:04.412 --> 00:12:06.173
what they've already bought.

00:12:06.274 --> 00:12:07.014
Why does this happen?

00:12:07.477 --> 00:12:07.677
Yeah,

00:12:08.118 --> 00:12:09.739
so let's get to the Frankenstein by

00:12:09.778 --> 00:12:11.480
setting some context here a little bit.

00:12:11.980 --> 00:12:14.441
See, acquisitions generate headlines.

00:12:15.020 --> 00:12:16.341
Integration doesn't.

00:12:16.942 --> 00:12:18.582
When you close a ten clinic deal,

00:12:18.623 --> 00:12:19.523
there's a press release.

00:12:19.863 --> 00:12:21.224
There's a multiple that went up.

00:12:21.764 --> 00:12:23.585
There's something to show the board at the

00:12:23.625 --> 00:12:24.645
next quarterly meeting.

00:12:25.005 --> 00:12:26.966
When you spend eighteen months integrating

00:12:26.986 --> 00:12:29.567
that acquisition, aligning EHR systems,

00:12:29.967 --> 00:12:31.187
building shared culture,

00:12:31.249 --> 00:12:32.649
developing clinical staff,

00:12:32.668 --> 00:12:34.149
investing in same-store growth,

00:12:34.690 --> 00:12:35.831
There isn't a press release.

00:12:36.172 --> 00:12:37.332
The board doesn't really care.

00:12:37.352 --> 00:12:38.794
It's an expectation they have,

00:12:38.835 --> 00:12:40.176
but that can take eighteen months.

00:12:40.876 --> 00:12:43.198
There's just quiet operational work that

00:12:43.240 --> 00:12:45.621
eventually shows up as margin improvement

00:12:45.642 --> 00:12:46.322
and retention.

00:12:46.663 --> 00:12:50.106
The way to judge an acquisition is you

00:12:50.147 --> 00:12:52.789
pay a multiple and that multiple has to

00:12:52.809 --> 00:12:55.432
be brought down to a better return on

00:12:55.452 --> 00:12:56.153
that multiple.

00:12:56.494 --> 00:12:58.034
in over a period of time.

00:12:58.475 --> 00:13:01.275
I think eighteen months is a reasonable

00:13:01.416 --> 00:13:02.255
expectation.

00:13:02.937 --> 00:13:03.836
And in my experience,

00:13:03.856 --> 00:13:05.697
you can grow a company twenty to thirty

00:13:05.738 --> 00:13:07.298
percent over that time period.

00:13:07.337 --> 00:13:09.119
The problem is you start stacking all

00:13:09.139 --> 00:13:10.119
these acquisitions,

00:13:10.158 --> 00:13:11.419
which is what happened in all these

00:13:11.460 --> 00:13:12.720
dysfunctional companies,

00:13:13.440 --> 00:13:14.780
and they couldn't integrate

00:13:15.241 --> 00:13:17.102
and one didn't get to one point two

00:13:17.143 --> 00:13:17.602
point oh,

00:13:17.623 --> 00:13:19.964
it got to point six and point seven.

00:13:20.604 --> 00:13:20.903
You see,

00:13:21.384 --> 00:13:23.784
PE incentive structures don't wait for the

00:13:23.825 --> 00:13:25.225
quiet operational work.

00:13:25.426 --> 00:13:26.866
They're on a five year hold period.

00:13:27.307 --> 00:13:29.067
Every quarter you're not acquiring is a

00:13:29.128 --> 00:13:30.628
quarter you're not building towards the

00:13:30.668 --> 00:13:31.408
exit multiple.

00:13:31.869 --> 00:13:33.548
So here's what you end up instead.

00:13:33.769 --> 00:13:35.129
That's what I call the Frankenstein

00:13:35.149 --> 00:13:35.570
network.

00:13:35.950 --> 00:13:37.730
Dozens of acquired practicing,

00:13:38.171 --> 00:13:39.631
each with its own EHR,

00:13:39.772 --> 00:13:41.052
each with its own culture,

00:13:41.472 --> 00:13:43.472
each with its own billing practice

00:13:43.513 --> 00:13:44.953
stitched together under brand

00:13:45.333 --> 00:13:47.816
shared name and a shared debt load with

00:13:47.875 --> 00:13:50.017
almost none of the operational synergies

00:13:50.076 --> 00:13:51.977
that justify the acquisition premium.

00:13:52.698 --> 00:13:54.940
Systems don't align, cultures clash.

00:13:55.019 --> 00:13:57.182
It's all one sided central management

00:13:57.261 --> 00:13:58.701
telling you what you have to do.

00:13:59.143 --> 00:14:00.764
No area of collaboration,

00:14:01.083 --> 00:14:03.325
no fierce disagreement, no teamwork,

00:14:03.806 --> 00:14:05.166
none of the things, you know,

00:14:05.206 --> 00:14:06.988
the tacit knowledge skills that you have

00:14:07.028 --> 00:14:08.368
to do when you really bring teams

00:14:08.408 --> 00:14:08.828
together.

00:14:09.621 --> 00:14:11.003
Then the clinicians who joined that

00:14:11.023 --> 00:14:11.583
platform,

00:14:12.063 --> 00:14:14.166
when they still had its original culture,

00:14:14.206 --> 00:14:17.308
they watch it get diluted with all these

00:14:17.349 --> 00:14:19.331
successive deals and same store growth,

00:14:19.350 --> 00:14:21.452
which is the actual proof that the

00:14:21.493 --> 00:14:22.433
business model works,

00:14:22.514 --> 00:14:24.274
never gets the investment it needs because

00:14:24.294 --> 00:14:26.356
the capital is always paying for the next

00:14:26.437 --> 00:14:28.379
acquisition or paying the interest on

00:14:28.418 --> 00:14:29.340
their acquisition.

00:14:29.700 --> 00:14:31.741
It's a great way to build a very

00:14:31.782 --> 00:14:33.724
impressive looking platform that is

00:14:33.783 --> 00:14:35.985
quietly hollowing out from the inside.

00:14:36.625 --> 00:14:37.826
Looks great on paper while they're

00:14:37.966 --> 00:14:39.787
quietly, I guess, running out of cash.

00:14:41.267 --> 00:14:41.486
Yes.

00:14:41.606 --> 00:14:43.847
Let's at least close on something hopeful.

00:14:45.128 --> 00:14:47.028
What are the platforms that actually get

00:14:47.067 --> 00:14:49.408
this right doing differently?

00:14:49.428 --> 00:14:51.909
This is the reason we study history all

00:14:51.929 --> 00:14:52.669
throughout school, right?

00:14:52.690 --> 00:14:54.470
We're supposed to watch the failures and

00:14:54.509 --> 00:14:55.830
piece together the things that could have,

00:14:55.850 --> 00:14:56.530
should have, would have happened.

00:14:56.551 --> 00:14:57.990
But who's doing it right now?

00:14:58.763 --> 00:14:58.942
Yeah,

00:14:58.962 --> 00:15:00.865
so I'll answer the second part of that

00:15:00.904 --> 00:15:02.765
carefully because the platforms doing this

00:15:02.826 --> 00:15:04.626
really well are usually private and

00:15:04.647 --> 00:15:06.128
they're not looking for attention.

00:15:06.629 --> 00:15:08.169
The ones that shout out about it the

00:15:08.210 --> 00:15:09.870
loudest are usually the ones that have the

00:15:09.931 --> 00:15:12.432
slickest decks and the most questionable

00:15:12.533 --> 00:15:13.693
unit economics.

00:15:13.714 --> 00:15:16.615
So I'll give you that pattern rather than

00:15:16.655 --> 00:15:17.437
the names,

00:15:17.517 --> 00:15:19.238
although I'm not afraid to name a few

00:15:19.278 --> 00:15:19.778
of them here.

00:15:20.438 --> 00:15:21.458
But what they share,

00:15:21.499 --> 00:15:22.899
let's talk about their commonalities.

00:15:22.960 --> 00:15:25.182
Clinician-informed leadership at every

00:15:25.241 --> 00:15:25.522
level.

00:15:25.822 --> 00:15:27.264
They don't run off founders.

00:15:28.222 --> 00:15:29.743
They don't do those kinds of things.

00:15:29.763 --> 00:15:33.524
They don't have this kind of poster child

00:15:33.724 --> 00:15:36.304
chief clinical officer joined at the hip

00:15:36.384 --> 00:15:38.424
of their COO as though that is some

00:15:38.465 --> 00:15:39.546
kind of big deal.

00:15:41.186 --> 00:15:42.807
But they don't care about clinical

00:15:42.826 --> 00:15:44.767
advisory boards that report up.

00:15:45.246 --> 00:15:47.168
But what they have is actual operators

00:15:47.187 --> 00:15:48.488
with actual authority

00:15:49.048 --> 00:15:51.690
and rooms where decisions get made see

00:15:51.730 --> 00:15:53.932
clinicians have transportable skills that

00:15:53.951 --> 00:15:56.092
have allowed them to be entrepreneurs and

00:15:56.153 --> 00:15:58.674
managers and they built businesses now you

00:15:58.735 --> 00:16:00.876
take them out of businesses doesn't make

00:16:00.937 --> 00:16:03.798
any sense right compensation models where

00:16:03.818 --> 00:16:06.441
a clinician who produces more takes home

00:16:06.480 --> 00:16:09.442
more that's realignment not a peloton sort

00:16:09.482 --> 00:16:11.345
of leaderboard with penalty tiers

00:16:12.065 --> 00:16:14.206
They don't do the next acquisition until

00:16:14.245 --> 00:16:16.047
the last one gets integrated.

00:16:16.486 --> 00:16:18.528
They do success one at a time.

00:16:18.548 --> 00:16:19.508
They share systems.

00:16:19.869 --> 00:16:21.089
They bring on culture.

00:16:21.408 --> 00:16:23.269
They recognize that you have different

00:16:23.309 --> 00:16:24.850
cultures and history and legacy,

00:16:24.890 --> 00:16:27.111
but you bring them together and they

00:16:27.172 --> 00:16:29.072
create new commitments around that.

00:16:29.753 --> 00:16:33.575
They use same store growth as the primary

00:16:33.855 --> 00:16:36.196
metric, organic growth.

00:16:36.990 --> 00:16:38.432
The reason they do that is if you

00:16:38.491 --> 00:16:40.373
can't do something well organically,

00:16:40.452 --> 00:16:42.313
why should you ever be entitled to buy

00:16:42.374 --> 00:16:44.095
anything?

00:16:44.115 --> 00:16:46.317
The clinician entrepreneurs who built the

00:16:46.356 --> 00:16:47.157
local businesses,

00:16:47.177 --> 00:16:48.958
they stay in the platform one way or

00:16:48.999 --> 00:16:49.399
another.

00:16:50.198 --> 00:16:51.159
They keep equity.

00:16:51.735 --> 00:16:54.557
They have genuine operational authority.

00:16:54.596 --> 00:16:56.278
They still have ownership at the local

00:16:56.317 --> 00:16:56.618
level.

00:16:56.658 --> 00:16:58.198
They might have it at the top level,

00:16:58.239 --> 00:16:59.799
but they really need it at the local

00:16:59.860 --> 00:17:00.159
level.

00:17:00.480 --> 00:17:03.062
They're not transition out six months

00:17:03.101 --> 00:17:06.804
under some cockamamie CEO trying to make a

00:17:06.864 --> 00:17:09.945
name for themselves and say, oh,

00:17:09.986 --> 00:17:11.946
we got running off founders as though that

00:17:11.987 --> 00:17:13.708
was built with some sort of strength.

00:17:14.760 --> 00:17:16.761
And here's the one ad that doesn't get

00:17:16.801 --> 00:17:17.422
enough attention.

00:17:18.042 --> 00:17:19.723
The professional managers in these

00:17:19.784 --> 00:17:23.665
platforms have verifiable track records of

00:17:23.705 --> 00:17:24.586
organic growth,

00:17:24.645 --> 00:17:27.968
not tricked up search firm resumes that

00:17:28.028 --> 00:17:29.709
claim top line growth,

00:17:29.749 --> 00:17:31.289
even though you bought a bunch of things,

00:17:31.349 --> 00:17:31.609
right?

00:17:32.130 --> 00:17:34.691
Specifically during the post COVID period,

00:17:34.730 --> 00:17:36.471
this is what is incredibly important

00:17:36.491 --> 00:17:39.054
because this is the period of time when

00:17:39.134 --> 00:17:40.513
labor costs have spiked,

00:17:40.614 --> 00:17:41.934
supply chains broke,

00:17:41.994 --> 00:17:43.615
reimbursement got cut,

00:17:44.115 --> 00:17:46.741
And clinician shortages were the new new.

00:17:46.862 --> 00:17:47.763
They were the new normal.

00:17:48.483 --> 00:17:50.184
Anyone could look at an operator in a

00:17:50.244 --> 00:17:52.145
free money environment from years ago

00:17:52.166 --> 00:17:54.067
where acquisitions were made and claimed

00:17:54.087 --> 00:17:55.528
they had all kinds of growth.

00:17:55.749 --> 00:17:57.069
And that's what you see on these tricked

00:17:57.109 --> 00:18:00.352
up resumes is the bragging of growth.

00:18:00.372 --> 00:18:01.011
Which, by the way,

00:18:01.051 --> 00:18:04.535
I'm going to go back and redo two

00:18:04.575 --> 00:18:06.395
more additions to metrics that don't

00:18:06.435 --> 00:18:06.756
matter.

00:18:06.796 --> 00:18:08.457
And growth and scale are going to be

00:18:09.258 --> 00:18:10.398
the next few episodes.

00:18:10.798 --> 00:18:11.499
But the question is,

00:18:12.460 --> 00:18:13.340
what do these companies do?

00:18:13.441 --> 00:18:15.182
They grew and they couldn't buy their way

00:18:15.261 --> 00:18:15.721
into it.

00:18:15.741 --> 00:18:17.363
These are companies that are quiet

00:18:17.462 --> 00:18:18.023
gainers.

00:18:18.844 --> 00:18:20.365
They didn't have to be flashy,

00:18:20.664 --> 00:18:22.646
shiny objects by buying new companies.

00:18:23.106 --> 00:18:25.107
The platforms that ask the questions in

00:18:25.127 --> 00:18:28.150
the hiring process are the ones that I

00:18:28.190 --> 00:18:29.270
will be watching.

00:18:29.871 --> 00:18:30.371
In dental,

00:18:30.431 --> 00:18:32.353
I could tell you Heartland Dental,

00:18:32.492 --> 00:18:35.674
a long-term DSO established by KKR,

00:18:36.315 --> 00:18:39.317
very thoughtful about how they do

00:18:39.356 --> 00:18:40.958
acquisitions and de novos.

00:18:42.439 --> 00:18:44.680
I think you've seen some physical therapy

00:18:44.720 --> 00:18:46.421
companies in the early days who've

00:18:46.461 --> 00:18:47.162
collapsed.

00:18:47.682 --> 00:18:49.584
But they started out doing mostly de

00:18:49.624 --> 00:18:50.124
novos,

00:18:50.163 --> 00:18:52.286
then went to mostly acquisitions and then

00:18:52.326 --> 00:18:53.886
failed.

00:18:53.948 --> 00:18:56.529
So there are winners in this world,

00:18:56.569 --> 00:18:59.352
but they remain relatively quiet and

00:18:59.712 --> 00:19:00.313
understated.

00:19:00.692 --> 00:19:01.374
Quiet and humble.

00:19:01.394 --> 00:19:01.673
All right.

00:19:01.693 --> 00:19:04.175
Let's play a quick segment called Operate

00:19:04.757 --> 00:19:05.617
or Overrate.

00:19:05.857 --> 00:19:06.719
Just give me an overrate.

00:19:06.759 --> 00:19:08.460
You want to operate or overrate?

00:19:09.480 --> 00:19:12.083
Centralized clinical protocols.

00:19:12.344 --> 00:19:13.825
Is that overrated or underrated?

00:19:16.278 --> 00:19:17.905
centralized clinical protocols.

00:19:20.616 --> 00:19:23.117
I think that's probably underrated.

00:19:23.917 --> 00:19:26.317
I think you have to have a

00:19:27.098 --> 00:19:31.440
consensus-driven approach to clinical

00:19:31.500 --> 00:19:33.380
protocols from the standpoint of evidence

00:19:33.420 --> 00:19:35.099
and the hierarchy of evidence.

00:19:35.800 --> 00:19:36.240
And say,

00:19:36.401 --> 00:19:39.240
out of the framework of low back pain,

00:19:39.942 --> 00:19:41.582
these are the clinical prediction rules

00:19:41.622 --> 00:19:42.281
we're going to use.

00:19:42.321 --> 00:19:44.923
These are the algorithms that we're going

00:19:44.962 --> 00:19:45.623
to teach.

00:19:46.464 --> 00:19:47.546
the treatment approaches.

00:19:47.865 --> 00:19:48.125
Yes,

00:19:48.165 --> 00:19:49.846
we understand there are deviations and

00:19:49.886 --> 00:19:52.188
comorbidities and things off of them.

00:19:53.189 --> 00:19:56.049
But I know I always wanted physicians

00:19:56.069 --> 00:19:57.730
coming back to me and saying, you know,

00:19:57.891 --> 00:19:59.172
I love the fact that when I send

00:19:59.231 --> 00:20:00.472
a low back pain patient,

00:20:00.492 --> 00:20:02.394
you do a clinical prediction rule or

00:20:02.453 --> 00:20:03.934
something and then engage them in a

00:20:03.994 --> 00:20:04.454
protocol.

00:20:04.474 --> 00:20:05.996
You don't have one person who just does

00:20:06.056 --> 00:20:06.756
manual therapy,

00:20:06.796 --> 00:20:08.237
another person that just does sports

00:20:08.277 --> 00:20:08.698
medicine,

00:20:09.097 --> 00:20:10.878
another person that just does McKenzie,

00:20:10.898 --> 00:20:12.640
another person that just does Syriax.

00:20:13.200 --> 00:20:16.001
So I do believe that an organizational's

00:20:16.063 --> 00:20:18.964
value in clinic is deciding on the top

00:20:19.005 --> 00:20:21.366
twelve to fifteen diagnosis and having

00:20:21.406 --> 00:20:22.907
treatment parameters and clinical

00:20:22.948 --> 00:20:24.910
prediction rules and evidence based

00:20:24.970 --> 00:20:25.631
process.

00:20:26.991 --> 00:20:27.271
You know,

00:20:27.432 --> 00:20:30.615
all they're driven through meta analysis

00:20:30.674 --> 00:20:31.996
and through and through the Cochrane

00:20:32.036 --> 00:20:34.077
system for the hierarchy of evidence.

00:20:34.824 --> 00:20:35.444
How about this one,

00:20:35.724 --> 00:20:37.666
which has been a buzz the last twelve

00:20:37.686 --> 00:20:38.508
to eighteen months?

00:20:39.148 --> 00:20:41.111
AI in health care operations.

00:20:41.151 --> 00:20:42.152
When it first popped up,

00:20:42.211 --> 00:20:43.413
it was going to be the savior of

00:20:43.453 --> 00:20:43.933
everything.

00:20:43.993 --> 00:20:46.237
But is it overrated or underrated or

00:20:46.297 --> 00:20:48.078
properly rated?

00:20:48.098 --> 00:20:49.621
Today, I would call it overrated.

00:20:50.642 --> 00:20:52.263
I think in the future it will be

00:20:52.344 --> 00:20:52.923
underrated.

00:20:53.204 --> 00:20:53.986
But right now.

00:20:54.590 --> 00:20:56.872
What you have is a lot of underfunded

00:20:56.932 --> 00:20:58.932
companies with shiny objects,

00:20:59.532 --> 00:21:02.094
adding things to EMR packages,

00:21:02.153 --> 00:21:03.714
marketing lead generation,

00:21:03.775 --> 00:21:05.134
schedule optimizing.

00:21:05.694 --> 00:21:07.596
All they are doing is allowing the over

00:21:07.655 --> 00:21:10.257
centralization feature that I've talked

00:21:10.277 --> 00:21:12.018
about it to be accelerated.

00:21:12.097 --> 00:21:13.278
That's not a good thing.

00:21:13.778 --> 00:21:15.118
Where it can become a good thing?

00:21:15.753 --> 00:21:17.394
Not optimizing EMR,

00:21:17.474 --> 00:21:19.036
not optimizing your schedule,

00:21:19.415 --> 00:21:21.136
not optimizing technology,

00:21:21.477 --> 00:21:23.097
optimizing humanness.

00:21:23.739 --> 00:21:25.419
What can I put in place that allows

00:21:25.480 --> 00:21:27.701
my therapists and my doctors to be more

00:21:27.760 --> 00:21:28.381
humane,

00:21:28.421 --> 00:21:30.342
to spend more time with their patients,

00:21:30.382 --> 00:21:31.423
to go home at the end of the

00:21:31.442 --> 00:21:34.304
day without the externalities of pressures

00:21:34.384 --> 00:21:34.704
on them?

00:21:35.265 --> 00:21:36.605
I have an article that I've written with

00:21:36.645 --> 00:21:39.426
Tim Flynn on the use of AI agents

00:21:39.507 --> 00:21:42.407
and how five agents running simultaneously

00:21:42.448 --> 00:21:44.528
in a physical therapist background will

00:21:44.548 --> 00:21:47.451
really enable a therapist to be more

00:21:47.510 --> 00:21:49.090
compassionate, empathetic,

00:21:49.391 --> 00:21:50.912
and spend more time with their patients.

00:21:51.291 --> 00:21:54.574
Now, that is where AI would be underrated.

00:21:54.693 --> 00:21:54.773
Well,

00:21:54.794 --> 00:21:56.055
that's what you talked about being that's

00:21:56.095 --> 00:21:57.255
where the business actually,

00:21:57.275 --> 00:21:58.336
that's where the value part of the

00:21:58.375 --> 00:21:58.935
business is.

00:21:59.355 --> 00:22:01.176
Last one I'll ask, overrated, underrated,

00:22:01.596 --> 00:22:03.337
flat salary compensation.

00:22:05.019 --> 00:22:06.201
Oh, grossly overrated.

00:22:07.141 --> 00:22:07.260
Yeah.

00:22:07.280 --> 00:22:08.842
You should never pay your top therapist

00:22:08.862 --> 00:22:10.903
the same as your bottom therapist through

00:22:10.982 --> 00:22:12.003
top line compensation.

00:22:12.523 --> 00:22:15.305
And variable compensation is not bonuses

00:22:15.365 --> 00:22:16.185
and incentives.

00:22:17.105 --> 00:22:19.948
It is the maturity to say we have

00:22:19.968 --> 00:22:22.931
a doctoring profession where we have

00:22:24.113 --> 00:22:27.316
ethics and values and expertise,

00:22:27.936 --> 00:22:30.098
and they should be paid a percentage of

00:22:30.118 --> 00:22:32.721
the compensation or the net revenue or the

00:22:32.761 --> 00:22:34.143
collections that they bring in.

00:22:34.163 --> 00:22:36.045
That's what every top doctoring profession

00:22:36.085 --> 00:22:36.384
does.

00:22:36.945 --> 00:22:39.048
And physical therapists are way behind in

00:22:39.067 --> 00:22:39.769
that area.

00:22:40.230 --> 00:22:42.592
And now that you have such penny nickel

00:22:42.632 --> 00:22:44.013
margins that we've talked about,

00:22:44.074 --> 00:22:45.455
the biggest portion of the comp,

00:22:45.476 --> 00:22:47.258
sixty seven percent is your labor.

00:22:47.798 --> 00:22:48.798
And out of that labor,

00:22:48.818 --> 00:22:50.882
you have to have a variable compensation

00:22:51.742 --> 00:22:54.005
shared risk with your therapist.

00:22:54.384 --> 00:22:57.368
This will move most of the compensation to

00:22:57.449 --> 00:22:58.089
therapists.

00:22:58.490 --> 00:22:59.090
And guess what?

00:22:59.191 --> 00:23:00.771
They're the ones who generate all the

00:23:00.832 --> 00:23:03.615
revenue and hopefully move compensation

00:23:03.714 --> 00:23:06.597
and move the number of overhead away from

00:23:06.678 --> 00:23:07.618
central management.

00:23:08.038 --> 00:23:10.641
The PT clinic, the dental clinic,

00:23:10.701 --> 00:23:12.824
the primary care clinic of the future is

00:23:12.844 --> 00:23:15.185
going to have a lot less headcount in

00:23:15.385 --> 00:23:18.249
revenue cycle management, credentialing,

00:23:18.979 --> 00:23:24.762
management in general hr finance and that

00:23:24.803 --> 00:23:27.924
will allow the profit and loss statement

00:23:28.045 --> 00:23:30.846
of to be rebalanced to a better margin

00:23:30.886 --> 00:23:33.628
but only if you shift that compensation to

00:23:33.648 --> 00:23:35.650
the people who absolutely produce it i'm

00:23:35.710 --> 00:23:38.352
very proletariat i'm like uh you know

00:23:38.432 --> 00:23:39.653
that's why i'm a big fan of major

00:23:39.673 --> 00:23:41.554
league baseball and what they've been able

00:23:41.594 --> 00:23:44.155
to do where they reward the people that

00:23:44.195 --> 00:23:46.336
generate the revenues in physical therapy

00:23:46.678 --> 00:23:48.699
what we do is the opposite we generate

00:23:50.020 --> 00:23:52.165
for therapists that get out of therapy and

00:23:52.185 --> 00:23:54.290
move it more up the ladder towards central

00:23:54.330 --> 00:23:54.872
management.

00:23:55.729 --> 00:23:57.750
that leads to partly of the five

00:23:57.790 --> 00:24:00.292
dysfunctions of healthcare platforms when

00:24:00.313 --> 00:24:02.493
they go awry all right go deeper if

00:24:02.513 --> 00:24:04.796
you're building operating or investing in

00:24:04.836 --> 00:24:06.797
healthcare this is the stuff that actually

00:24:06.836 --> 00:24:08.238
matters and you should be paying attention

00:24:08.278 --> 00:24:09.880
to not the pitch decks they can be

00:24:09.920 --> 00:24:12.060
slicked up not the multiple the way

00:24:12.121 --> 00:24:14.442
business actually runs if this hit go read

00:24:14.462 --> 00:24:16.084
the full piece links in the show notes

00:24:16.525 --> 00:24:17.786
it's worth your time and if you're not

00:24:17.826 --> 00:24:19.247
already subscribed to the operator

00:24:19.747 --> 00:24:21.911
That's where Larry is writing this in real

00:24:21.971 --> 00:24:23.374
time, one problem at a time,

00:24:23.413 --> 00:24:25.798
and now available on all podcast platforms

00:24:25.838 --> 00:24:26.721
as well as YouTube.

00:24:27.301 --> 00:24:29.185
We'll see you next time here on The

00:24:29.226 --> 00:24:29.567
Operator.