Why Healthcare Platforms Fail (It’s Not Private Equity)

WEBVTT

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Here's the intro.

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Most healthcare platforms don't fail

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because of bad intentions.

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They fail because they repeat the same

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mistakes over and over again.

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Today here on The Operator,

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we're breaking down why healthcare

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platform business models go awry.

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And it's not just in physical therapy.

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This is happening in dental, primary care,

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ortho, everywhere.

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Larry's been watching this for forty

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years.

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Same pattern, rapid growth,

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big valuations and then collapse.

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So today we're getting into why that

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happens and more importantly,

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how to avoid it and learn from the

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mistakes.

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So, Larry, let's start with this.

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You said something in your article that

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really stuck with me and jumped out.

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This isn't a private equity problem.

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It feels like we love to label the

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villains.

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But you you labeled a statistic about five

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percent of private equity.

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You think it's more of an operator

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problem.

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What do most people get wrong about that,

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private equity versus operator?

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Yeah,

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so private equity is a form of financing

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your company.

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It's like bank debt or self-funding or

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going public.

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And in the old days,

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everybody went public,

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even if they didn't have any earnings,

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even in healthcare,

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because it was a form of financing your

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company.

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So PE is financing.

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It's an accelerant.

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It's not an arsonist.

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When a platform fails,

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everybody wants to point at the capital

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structure because it's a clean villain and

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it lets operators off the hook.

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It's like a red herring.

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But I've watched platforms collapse that

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never took a dollar of private equity.

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And I've watched PE backed platforms that

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were reasonably well run.

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The difference was always the same.

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The operator management team alignment

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with their board.

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and all the ecosystem around that.

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Did they build system or did they just

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acquire,

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just use the lever arm of buying

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something?

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Did they hold culture?

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Did they go and let it dilute down

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to nothing?

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PE compresses the timeline and may amplify

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the consequences,

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but the dysfunction exposes,

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the dysfunctions were already there to

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begin with.

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They were just hiding behind cheap cost of

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capital.

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Yeah.

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And it looked good on paper.

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And then in practice,

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it gets pressure tested and then you see

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where the leaks are.

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So let's talk more about this free money.

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You basically said a lot of operators

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looked smart because money was cheap for a

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good ten, twelve year period.

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How much of what we saw over the

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last decade was actually good business

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versus cheap capital hiding those bad

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decisions?

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That's a great question.

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So I kind of,

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for the purposes of this article,

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series of articles,

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divide the world in two.

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If you look back in the day,

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we all believe that healthcare was

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recession-proof.

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People made investments or allocated more

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money towards healthcare platforms because

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it was believed to be resistant against

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any type of inflation.

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Well,

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the reality is when you can't increase

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your prices in response to inflation,

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which is what reimbursement headwinds are

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all about,

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and you have a very over-regulated

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business.

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On top of that,

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you had the effects of COVID,

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which not only brought wage inflation,

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supply inflation,

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it brought immense shortages,

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coupled with operational headwinds that

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really, really created a much,

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much different

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uh organization you had to lay people off

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during covet or they had to take the

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government's money for being laid off all

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of those factors changed the game now

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today what i see is platforms trying to

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operate in a post-coveted environment with

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all of those lever arms being an impact

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like it was pre-coveted money is no longer

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free inflation's effects are very real

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people are now all sudden asking for wage

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reduction

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reimbursement hasn't gone up in fact it's

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gone down fifteen to twenty percent

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depending on which payer you're talking

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about so this takes even better operators

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not blaming the playbook of private equity

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or anybody else all of those things are

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the the real impact right now

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And this is not vertical specific.

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You've seen this across physical therapy,

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dental, primary care, ortho,

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different industries,

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and somehow same failure patterns.

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So why do we let history repeat itself?

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These things play out in public.

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Why do operators keep making the same

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mistakes over and over again,

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even when we have the receipts?

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Yeah, because again,

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they haven't changed their playbook.

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They're operating in a pre-COVID

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environment when it's post-COVID.

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You get access to capital,

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you acquire aggressively,

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You produce impressive unit counts.

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You tell a growth story to whoever will

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hear it, investors, analysts,

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even your own board.

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And you defer the hard organizational work

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because integration is slow,

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it's unglamorous,

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and it doesn't show up in a board

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deck.

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Then the capital environment shifts,

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reimbursement continues to be a problem,

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labor inflation hits,

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and suddenly the structural debt you've

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accumulated all comes due at once.

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We saw it in the nineties with FICOR

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and MedPartners.

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We saw it again in the PE era,

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two point O, so to speak,

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with Stewart and Envision.

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And then CVS and Amazon,

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these are public companies,

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spent billions rediscovering the same

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lessons.

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Thirty years, three eras, I should say,

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one playbook,

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The details changed.

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The outcome really didn't matter.

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And I think I did the series on

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metrics.

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If I was going to go back and

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add one more week,

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it would be around the word growth.

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Because growth means different things to

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different stakeholders.

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And oftentimes,

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growth doesn't mean profitable growth.

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It might just mean revenue growth.

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Well, if you're in an area of software,

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for example,

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where your valuation metrics is top line

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growth,

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That's great.

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But in physical therapy platforms,

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health care platforms,

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it's all based on real cash flow,

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not fake cash flow.

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And growth shouldn't be measured in top

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line because if you're buying things,

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you're naturally going to have for growth.

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That's the same mistake I see these

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unprofessional manager CEOs make.

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They say how much growth they've had.

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But if they have the same amount of

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revenue and they buy something that adds

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revenue to it and you call that growth,

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that is not growth.

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What you have to do is integrate properly

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and make one and one equal two.

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And so you have to have a benchmark

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around your acquisitions that post one

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year or post eighteen months,

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that dollar that you bought is now a

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dollar thirty.

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What's happened in most of these health

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care platforms and even in the public

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companies,

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their dollar that they bought is now worth

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fifty cents.

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And the dollars that it took to buy

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that, the debt on that is suddenly due.

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And most of these businesses on a cash

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flow basis lose money every month.

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All right, if I made you pick one,

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the most dangerous mistake,

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what's the fastest way to break a

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healthcare platform?

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Is it like centralization, compensation,

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disconnection from what the actual product

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is, the clinic floor?

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What is the most dangerous mistake you've

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seen repeated?

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I think the most dangerous mistake is

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cultural erosion.

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Wow.

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When you start terminating founders for no

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reason other than you want to scale,

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when you start taking the entrepreneurial

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zest that got you there away,

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you start to run into no man's land.

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Now, operationally,

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you have to have the blocking and tackling

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right.

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You have to have integration correctly so

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that if you're buying something at a

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dollar a year and a half later,

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it's worth a dollar and a half.

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You have to make sure that your clinicians

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are trained and that you have a

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clinician-centric organization.

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And then you have to have what I

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call a healthy tension between over

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centralization and decentralization.

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You want to put in great systems in

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place to make your therapist or your

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doctors or your dentist be able to

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flourish and thrive clinically.

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No question about it,

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but if you eviscerate them and start

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treating them like widget makers,

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and you start talking about all this scale

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and all of this centralization,

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you just absolutely kill the golden goose.

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And I see that over and over again.

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And when we get to the five dysfunctions

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of all this in the second set of

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articles,

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you'll see that those are the five

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patterns that repeat themselves.

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In the last portion of those top five,

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not a little bit of a spoiler alert,

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is that the financial structure,

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they just have too much debt.

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And so what ends up happening is they

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produce all of their revenues to pay for

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the debt.

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And at some point in time with an

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increased inflation and increased interest

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rates,

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you no longer have dollars beyond what you

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have to pay the debt.

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That decreases your investment.

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It decreases your training of your

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therapist and decreases cultural elements.

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And all those things throw you into no

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man's land and over time dysfunction where

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you then need a lot of restructuring

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because these platforms have gone awry.

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And in physical therapy,

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We've now seen thirty years of that in

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physical therapy.

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I can name you a half a dozen

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companies that got to about the eighty to

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one hundred million in EBITDA range and

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then fell off a cliff.

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All the same patterns.

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Those patterns emerge not just in physical

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therapy and other health care platforms,

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as you'll see in episode two.

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Yeah, good series preview,

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but not just other health care platforms.

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You brought up

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outside of the silo of healthcare, CVS,

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Amazon, Walgreens,

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Rite Aid doesn't exist in my town anymore.

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Some of the smartest companies, you know,

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smartest companies in the world,

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and they still struggled.

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What did they misunderstand about

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healthcare?

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It's interesting.

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For many, many years,

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going back twenty years,

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I remember sitting around a table and a

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lot of really good executives would say,

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you know,

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the best and brightest companies in the

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world, the Microsofts of the world,

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the Dell computers of the world.

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Now you would say NVIDIA and Google and

00:09:59.443 --> 00:09:59.845
all those.

00:09:59.865 --> 00:10:00.125
You say,

00:10:00.184 --> 00:10:02.366
why don't the great technology companies

00:10:02.427 --> 00:10:03.288
get into health care?

00:10:04.197 --> 00:10:05.719
Well, there's a reason they don't.

00:10:06.038 --> 00:10:07.078
The few that have tried,

00:10:07.139 --> 00:10:09.179
Amazon is one that has tried and is

00:10:09.240 --> 00:10:10.260
continuing to try.

00:10:10.280 --> 00:10:12.000
Remember that one of their first

00:10:12.061 --> 00:10:14.481
acquisitions years ago was drugstore.com

00:10:14.501 --> 00:10:15.462
or something like that,

00:10:15.543 --> 00:10:16.722
and that completely failed,

00:10:17.384 --> 00:10:20.384
is they seriously discount the regulatory

00:10:20.404 --> 00:10:21.625
environment that healthcare.

00:10:21.664 --> 00:10:23.625
When you have technology and you have all

00:10:23.666 --> 00:10:24.826
of these things going on,

00:10:26.347 --> 00:10:27.869
It's anti-regulation.

00:10:27.948 --> 00:10:29.410
Well, when you get into health care, it's,

00:10:29.711 --> 00:10:31.331
you know, other than nuclear power plants,

00:10:31.371 --> 00:10:34.034
it's the most regulated environment and

00:10:34.075 --> 00:10:35.775
they discount that and you can't.

00:10:36.537 --> 00:10:38.798
Everybody thinks everybody else's industry

00:10:38.958 --> 00:10:39.500
is easy.

00:10:39.600 --> 00:10:41.642
And so primary care was thought to be,

00:10:41.662 --> 00:10:42.783
you know,

00:10:42.863 --> 00:10:44.823
everybody was going to get into primary

00:10:44.864 --> 00:10:45.384
care,

00:10:45.804 --> 00:10:47.767
even the financial companies thought.

00:10:48.027 --> 00:10:49.388
formed a sector.

00:10:49.447 --> 00:10:51.567
If you remember when JP Morgan and these

00:10:51.628 --> 00:10:53.369
others did it, it all failed.

00:10:53.428 --> 00:10:54.549
It's just a very,

00:10:54.570 --> 00:10:56.570
very difficult business because there's a

00:10:56.610 --> 00:10:57.890
lot of blocking and tackling.

00:10:58.490 --> 00:10:59.412
And I think at the end of the

00:10:59.432 --> 00:10:59.572
day,

00:10:59.591 --> 00:11:01.312
it's because it's a relationship and it's

00:11:01.331 --> 00:11:02.393
a people business.

00:11:02.773 --> 00:11:05.433
You can't replace people with technology

00:11:05.874 --> 00:11:07.995
from a hands-on delivery of health care.

00:11:08.394 --> 00:11:10.274
And while you might have adjuncts through

00:11:10.394 --> 00:11:12.475
AI and radiology, for example,

00:11:12.556 --> 00:11:13.995
or you might be able to use AI

00:11:14.436 --> 00:11:16.355
to help you on your documentation or even

00:11:16.395 --> 00:11:17.736
help you on your diagnosis,

00:11:18.017 --> 00:11:19.817
it's still a people-to-people business.

00:11:20.136 --> 00:11:21.457
And I think that they forget that.

00:11:22.557 --> 00:11:23.837
It's not easy.

00:11:24.158 --> 00:11:25.999
As our current president said,

00:11:26.038 --> 00:11:26.839
it's complicated.

00:11:28.774 --> 00:11:30.956
It's so simple when you're just at dinner

00:11:30.976 --> 00:11:32.197
on the back of a napkin saying,

00:11:32.238 --> 00:11:34.039
here's how you fix your entire industry.

00:11:34.059 --> 00:11:35.181
Let me map it out for you.

00:11:35.240 --> 00:11:36.503
Unless you've sat inside it,

00:11:37.003 --> 00:11:39.365
it might look simple, but it's not easy.

00:11:39.384 --> 00:11:40.726
It is complicated.

00:11:41.287 --> 00:11:42.107
So then let's flip it.

00:11:42.528 --> 00:11:44.409
What are the platforms that actually work

00:11:44.549 --> 00:11:45.410
do differently?

00:11:45.451 --> 00:11:46.893
What are the people who do it well?

00:11:47.312 --> 00:11:48.894
What's their secret sauce or what do they

00:11:48.995 --> 00:11:49.956
look at and do well?

00:11:50.559 --> 00:11:51.980
Yeah, said simply,

00:11:52.600 --> 00:11:55.081
buying things is not a very difficult

00:11:55.581 --> 00:11:56.921
competency, right?

00:11:56.980 --> 00:11:58.721
You don't need to train a kid to

00:11:58.760 --> 00:12:00.782
go to a candy store and buy things.

00:12:00.822 --> 00:12:02.201
You don't need to train an adult

00:12:02.241 --> 00:12:03.881
businessman to buy a business.

00:12:03.902 --> 00:12:05.982
You can develop those competencies rather

00:12:06.143 --> 00:12:06.562
easily.

00:12:07.023 --> 00:12:09.682
The more difficult work is integration.

00:12:10.202 --> 00:12:12.163
And so the successful companies treat

00:12:12.283 --> 00:12:14.663
integration as an actual work product.

00:12:14.943 --> 00:12:15.964
They take pride in it.

00:12:15.984 --> 00:12:17.524
They see benchmarks around it.

00:12:17.544 --> 00:12:18.825
They have dashboards around it.

00:12:19.205 --> 00:12:21.347
The acquisition is just how you get across

00:12:21.408 --> 00:12:22.288
the raw material.

00:12:22.610 --> 00:12:23.812
The platforms that work,

00:12:23.851 --> 00:12:24.572
and there are some,

00:12:24.712 --> 00:12:27.616
are obsessive about the period right after

00:12:27.677 --> 00:12:28.597
an acquisition.

00:12:29.239 --> 00:12:30.399
When we did acquisitions,

00:12:30.480 --> 00:12:31.381
when I was running it,

00:12:32.163 --> 00:12:34.765
we did them over an eighteen month period.

00:12:35.427 --> 00:12:37.568
because we believe that you integrate

00:12:37.749 --> 00:12:41.312
slowly not quickly you onboard a practice

00:12:41.373 --> 00:12:43.274
in your culture just like you onboard a

00:12:43.315 --> 00:12:46.116
new employee you do that with without

00:12:46.177 --> 00:12:49.159
destroying what made it valuable in the

00:12:49.240 --> 00:12:52.383
first place i remember bill samuels of

00:12:52.442 --> 00:12:54.065
makers mark always saying it you know

00:12:54.105 --> 00:12:55.985
don't screw up the whiskey

00:12:56.840 --> 00:12:57.159
You know,

00:12:57.400 --> 00:12:58.961
you can be as big as you want

00:12:59.022 --> 00:13:00.023
as a whiskey company.

00:13:00.062 --> 00:13:02.304
But if you start messing with the formula,

00:13:02.625 --> 00:13:03.605
you're going to screw it up.

00:13:04.386 --> 00:13:05.508
That's what we tend to do in the

00:13:05.528 --> 00:13:06.388
health care platforms.

00:13:06.427 --> 00:13:08.110
But the ones that are successful have

00:13:08.149 --> 00:13:10.152
compensation models that were designed

00:13:10.172 --> 00:13:12.913
with clinical input and they get revisited

00:13:12.994 --> 00:13:13.695
regularly.

00:13:13.914 --> 00:13:14.715
You know, they don't.

00:13:15.436 --> 00:13:17.035
commoditize and widget maker.

00:13:17.056 --> 00:13:18.236
They don't fire founders.

00:13:18.256 --> 00:13:19.817
They don't fire entrepreneurs.

00:13:20.456 --> 00:13:22.437
And the leadership is very real structured

00:13:22.477 --> 00:13:24.379
mechanisms for hearing from what I would

00:13:24.418 --> 00:13:26.739
call the clinical floor, not a survey.

00:13:26.879 --> 00:13:28.940
I really do believe whether you're a

00:13:29.019 --> 00:13:30.480
baseball manager owner,

00:13:30.519 --> 00:13:32.160
you ought to be player centric.

00:13:32.520 --> 00:13:34.441
If you're a healthcare platform owner,

00:13:34.480 --> 00:13:36.261
you ought to be dentist centric,

00:13:36.322 --> 00:13:39.023
doctor centric, clinician centric,

00:13:39.062 --> 00:13:39.383
because

00:13:40.003 --> 00:13:41.825
Those are your golden goose.

00:13:41.845 --> 00:13:43.826
Those are the only way you make money

00:13:43.947 --> 00:13:45.950
is through the revenues that they produce,

00:13:45.970 --> 00:13:47.571
through the pen that they write

00:13:47.610 --> 00:13:49.293
prescriptions in if it's a physician,

00:13:49.714 --> 00:13:50.654
not a town hall.

00:13:50.695 --> 00:13:52.736
So you have to get down to the

00:13:52.777 --> 00:13:55.019
business there and have operational

00:13:55.039 --> 00:13:56.681
accountability that connects us to what's

00:13:56.721 --> 00:13:57.903
happening in the exam room.

00:13:58.668 --> 00:13:59.710
not the other way around.

00:14:00.129 --> 00:14:01.510
None of this, by the way, is magic.

00:14:01.850 --> 00:14:03.230
It's just really hard work.

00:14:03.772 --> 00:14:05.513
And it doesn't make for a great investor

00:14:05.572 --> 00:14:06.033
narrative,

00:14:06.072 --> 00:14:07.913
which is probably why it's so rare.

00:14:08.254 --> 00:14:10.815
You always want the shiny board decks

00:14:10.835 --> 00:14:12.216
talking about growth,

00:14:12.716 --> 00:14:15.717
not about integration or success or making

00:14:15.758 --> 00:14:18.620
a dollar equals a dollar and twenty a

00:14:18.659 --> 00:14:19.120
year later.

00:14:20.153 --> 00:14:21.296
All right, time for a quick segment.

00:14:21.375 --> 00:14:23.339
This is called operated.

00:14:23.599 --> 00:14:24.279
See what I did there?

00:14:24.399 --> 00:14:24.841
Operated.

00:14:24.880 --> 00:14:26.442
We're going to do a quick overrated,

00:14:26.884 --> 00:14:27.924
underrated segment.

00:14:28.184 --> 00:14:29.267
All right, so I'll throw out a term.

00:14:29.307 --> 00:14:31.269
You tell me whether it's overrated or

00:14:31.370 --> 00:14:31.870
underrated.

00:14:32.552 --> 00:14:34.293
Private equity in health care.

00:14:34.333 --> 00:14:35.596
Would you overrate that or is it

00:14:35.696 --> 00:14:36.256
underrated?

00:14:36.537 --> 00:14:37.496
Grossly underrated.

00:14:37.998 --> 00:14:39.398
Without private equity in healthcare,

00:14:39.437 --> 00:14:42.078
you wouldn't have access to healthcare

00:14:42.198 --> 00:14:42.960
like you do now.

00:14:43.059 --> 00:14:45.701
You wouldn't have well-funded technology

00:14:45.760 --> 00:14:47.881
companies that have good EMR products.

00:14:47.902 --> 00:14:50.462
You wouldn't have supply chain issues.

00:14:50.503 --> 00:14:52.144
You wouldn't have a bunch of hospitals

00:14:52.183 --> 00:14:53.083
across the country.

00:14:53.923 --> 00:14:55.184
So seriously underrated.

00:14:55.245 --> 00:14:57.005
It's a small portion of a big picture,

00:14:57.326 --> 00:14:58.285
like five percent,

00:14:58.706 --> 00:15:01.567
but it is generally regarded in a critical

00:15:01.607 --> 00:15:02.548
way, unfortunately.

00:15:03.407 --> 00:15:05.727
How about EBITDA as a success metric?

00:15:05.768 --> 00:15:06.587
If you've listened before,

00:15:06.607 --> 00:15:07.947
I think you know the answer here.

00:15:07.988 --> 00:15:09.828
The answer is it's grossly overrated.

00:15:10.249 --> 00:15:15.190
EBITDA is a result, not a lead generator.

00:15:15.909 --> 00:15:17.009
It's a lag indicator.

00:15:18.350 --> 00:15:21.850
Centralized decision-making.

00:15:22.812 --> 00:15:24.331
It is grossly overrated.

00:15:25.192 --> 00:15:26.972
If you have centralized decision-making,

00:15:27.013 --> 00:15:28.513
you do not have a successful company.

00:15:28.913 --> 00:15:30.514
You have to have a healthy tension between

00:15:30.533 --> 00:15:32.274
what occurs centrally and decentrally.

00:15:33.369 --> 00:15:35.070
Founder-led clinics,

00:15:35.389 --> 00:15:36.431
overrated or underrated?

00:15:36.870 --> 00:15:38.230
Underrated, underrated.

00:15:38.270 --> 00:15:39.692
You could look at any business,

00:15:39.751 --> 00:15:41.452
as you'll see in part two,

00:15:42.153 --> 00:15:43.974
and you're going to get four to five

00:15:43.994 --> 00:15:46.274
hundred basis point of margin improvement

00:15:46.294 --> 00:15:48.916
when you have a local partner.

00:15:48.956 --> 00:15:50.956
Growth through acquisition,

00:15:51.136 --> 00:15:52.197
overrated or underrated?

00:15:53.543 --> 00:15:56.067
overrated because it's the natural

00:15:56.126 --> 00:15:56.787
default.

00:15:57.427 --> 00:16:00.510
The default should be organic growth,

00:16:00.630 --> 00:16:01.812
same store,

00:16:01.932 --> 00:16:03.553
but that doesn't make for shiny board

00:16:03.594 --> 00:16:03.975
decks.

00:16:04.115 --> 00:16:06.136
Everybody wants to buy a new shiny object.

00:16:06.758 --> 00:16:09.059
And my belief in the way I run

00:16:09.080 --> 00:16:11.201
things is if you can't show organic

00:16:11.241 --> 00:16:11.582
growth,

00:16:11.623 --> 00:16:13.283
you shouldn't be in the business of buying

00:16:13.303 --> 00:16:14.485
things because all you're going to do is

00:16:14.546 --> 00:16:14.885
ruin them.

00:16:15.427 --> 00:16:15.506
Yeah,

00:16:15.527 --> 00:16:16.368
you don't have to teach a kid how

00:16:16.388 --> 00:16:17.589
to walk into a candy store and buy

00:16:17.629 --> 00:16:18.208
stuff.

00:16:19.210 --> 00:16:20.029
I learned that real quick.

00:16:21.071 --> 00:16:22.812
Final overrated, underrated,

00:16:22.871 --> 00:16:25.714
professional managers running clinics.

00:16:26.554 --> 00:16:27.134
Overrated?

00:16:27.815 --> 00:16:30.798
I think the term professional managers has

00:16:31.118 --> 00:16:34.899
really now become tricked up resumes by

00:16:34.980 --> 00:16:35.640
search firms.

00:16:36.561 --> 00:16:38.903
And there's absolutely nothing wrong with

00:16:38.982 --> 00:16:40.903
engaging with professional managers.

00:16:41.424 --> 00:16:43.446
But what has happened is we've put so

00:16:43.485 --> 00:16:44.147
much weight

00:16:44.767 --> 00:16:46.447
into thinking people are professional

00:16:46.488 --> 00:16:47.128
managers.

00:16:47.207 --> 00:16:48.509
And I can give you more examples of

00:16:48.528 --> 00:16:49.989
where they've ruined companies than where

00:16:50.009 --> 00:16:51.250
they've helped them and healthcare

00:16:51.269 --> 00:16:53.610
platforms doesn't mean there isn't some

00:16:53.770 --> 00:16:56.152
unbelievable platforms being run by so

00:16:56.192 --> 00:16:57.513
called professional managers.

00:16:58.413 --> 00:17:00.114
But give me a business where you got

00:17:00.514 --> 00:17:02.414
your entrepreneur founders involved in

00:17:02.475 --> 00:17:05.135
some capacity, offsetting strengths,

00:17:05.256 --> 00:17:06.696
all of those kinds of things.

00:17:07.196 --> 00:17:08.738
And I'll show you a business that is

00:17:09.057 --> 00:17:09.738
likely failing.

00:17:11.365 --> 00:17:13.465
Now, show me how this shows up.

00:17:13.566 --> 00:17:15.708
How does decision-making getting

00:17:15.748 --> 00:17:17.388
disconnected from the clinical floor

00:17:18.148 --> 00:17:19.849
actually show up in real life?

00:17:19.890 --> 00:17:21.411
What does it actually look like?

00:17:21.471 --> 00:17:22.311
How do you spot it?

00:17:23.871 --> 00:17:24.030
Yeah,

00:17:24.050 --> 00:17:27.613
so what happens is you commoditize your

00:17:27.633 --> 00:17:28.292
providers.

00:17:28.792 --> 00:17:31.054
And so what professional managers tend to

00:17:31.134 --> 00:17:32.035
do, and again,

00:17:32.055 --> 00:17:33.234
there are some terrific ones,

00:17:33.255 --> 00:17:35.016
so I'm spitballing here and kind of

00:17:35.076 --> 00:17:35.757
generalizing.

00:17:36.237 --> 00:17:37.758
But what I've seen in most healthcare

00:17:37.798 --> 00:17:40.098
platforms is over time,

00:17:40.118 --> 00:17:41.679
they think all providers are stupid.

00:17:42.079 --> 00:17:43.700
They think all providers should be doing

00:17:43.779 --> 00:17:45.461
nothing but generating revenue,

00:17:45.520 --> 00:17:46.402
seeing patients,

00:17:46.521 --> 00:17:48.442
maximizing their efficiency,

00:17:49.323 --> 00:17:51.104
making as much coffee as they can.

00:17:51.743 --> 00:17:54.865
When the reality is the impacts,

00:17:54.965 --> 00:17:58.008
the pressures that a clinician has every

00:17:58.067 --> 00:18:00.950
day between patients and insurance

00:18:00.990 --> 00:18:04.011
companies and EMRs and the regulatory side

00:18:04.051 --> 00:18:04.352
of it.

00:18:04.613 --> 00:18:05.933
And these folks have lives.

00:18:06.374 --> 00:18:07.314
And it's very, very difficult.

00:18:07.334 --> 00:18:09.935
It's why burnout exists in part,

00:18:09.996 --> 00:18:12.458
because you have so much externality

00:18:12.817 --> 00:18:14.378
pressuring them through the so-called

00:18:14.419 --> 00:18:15.920
efforts of professional managers.

00:18:16.240 --> 00:18:17.681
When you engage in a collaborative

00:18:17.721 --> 00:18:18.182
process.

00:18:18.201 --> 00:18:19.762
So here's what some professional managers

00:18:19.782 --> 00:18:19.883
do.

00:18:19.903 --> 00:18:21.624
They'll name a chief clinical officer.

00:18:22.084 --> 00:18:23.944
You know, that is their poster child of,

00:18:24.065 --> 00:18:25.625
oh, we're very clinically oriented.

00:18:25.644 --> 00:18:27.766
And in fact, our chief clinician officer,

00:18:27.806 --> 00:18:30.007
he's hooked at the hip with our COO.

00:18:30.547 --> 00:18:31.406
And it's all bullshit.

00:18:31.567 --> 00:18:32.768
It is all just a,

00:18:33.087 --> 00:18:36.028
it's all to make a shiny board deck.

00:18:36.509 --> 00:18:37.470
Look at the results.

00:18:37.630 --> 00:18:38.769
The results are what matter.

00:18:38.809 --> 00:18:40.290
If you have a results-oriented work

00:18:40.310 --> 00:18:42.451
environment around a solid culture built

00:18:42.490 --> 00:18:44.672
around your clinicians with good basic

00:18:44.751 --> 00:18:46.752
blocking and tackling and fundamentals,

00:18:47.252 --> 00:18:48.634
The metrics around health care are not

00:18:48.673 --> 00:18:49.275
that difficult.

00:18:49.295 --> 00:18:51.836
The execution is extremely difficult.

00:18:52.497 --> 00:18:54.838
And we oftentimes do not apply common

00:18:54.919 --> 00:18:56.420
sense in common practice.

00:18:56.799 --> 00:18:58.721
And those things in aggregate are what

00:18:58.882 --> 00:19:01.023
ruin health care platforms,

00:19:01.624 --> 00:19:04.026
as you'll see the evidence in part two.

00:19:04.066 --> 00:19:05.666
Compensation gets brought up a lot.

00:19:06.067 --> 00:19:07.648
You can make a big mistake there and

00:19:08.068 --> 00:19:09.150
it can hurt you for a while and

00:19:09.170 --> 00:19:10.190
you might not be able to recover.

00:19:10.230 --> 00:19:11.731
So what are the biggest compensation

00:19:12.172 --> 00:19:14.913
mistakes you see that end up driving

00:19:14.933 --> 00:19:15.855
clinicians away?

00:19:16.846 --> 00:19:19.346
yeah so we we tend to make centralization

00:19:19.386 --> 00:19:21.867
decisions around bonuses and compensation

00:19:21.887 --> 00:19:24.210
because it's easier for finance accounting

00:19:24.349 --> 00:19:26.590
legal and hr team you should make

00:19:26.631 --> 00:19:28.751
decisions based off ease for your

00:19:28.771 --> 00:19:30.633
administrative team you should make

00:19:30.673 --> 00:19:33.213
decisions based off the best alignment

00:19:33.233 --> 00:19:35.875
with your clinicians so we base it on

00:19:36.035 --> 00:19:38.756
units or visits or something that drives

00:19:38.855 --> 00:19:39.497
volume

00:19:40.156 --> 00:19:42.220
never wondering whether or not payer mix

00:19:42.259 --> 00:19:43.161
makes any difference,

00:19:43.520 --> 00:19:45.364
whether or not this clinician has more

00:19:45.663 --> 00:19:47.625
patients that have higher comorbidities or

00:19:47.645 --> 00:19:48.748
higher complications.

00:19:49.429 --> 00:19:51.111
I do believe that the doctoring

00:19:51.151 --> 00:19:54.434
professions ought to have the clinicians

00:19:54.474 --> 00:19:55.675
making the most money,

00:19:56.336 --> 00:19:58.337
through their ability to receive a

00:19:58.417 --> 00:20:00.178
percentage of the compensation that they

00:20:00.238 --> 00:20:00.699
produce.

00:20:01.078 --> 00:20:01.239
Now,

00:20:01.259 --> 00:20:02.618
I'm not saying that as a day one

00:20:02.638 --> 00:20:04.000
clinician, so you have to have a,

00:20:04.019 --> 00:20:06.161
you know, a guarantee, if you will,

00:20:06.181 --> 00:20:08.540
a safety net as an onboarding because

00:20:08.580 --> 00:20:10.362
clinicians are graduating from schools

00:20:10.422 --> 00:20:12.202
post-clinicians and they need more and

00:20:12.242 --> 00:20:12.883
more training.

00:20:13.262 --> 00:20:15.165
So you have to upskill them and give

00:20:15.205 --> 00:20:16.887
them that year, year and a half,

00:20:16.928 --> 00:20:17.909
whatever it may be,

00:20:18.348 --> 00:20:20.511
so that you're not tying their

00:20:20.751 --> 00:20:21.673
compensation.

00:20:21.692 --> 00:20:23.095
You're giving them a guarantee,

00:20:23.134 --> 00:20:24.797
just like we do in a lot of

00:20:24.836 --> 00:20:25.557
other businesses.

00:20:25.898 --> 00:20:27.259
And then after that point,

00:20:28.136 --> 00:20:30.557
The way the clinicians generate their

00:20:30.597 --> 00:20:32.118
revenue is through their care.

00:20:32.499 --> 00:20:33.500
And if they're good care,

00:20:33.539 --> 00:20:34.640
they'll get good word of mouth,

00:20:35.000 --> 00:20:35.661
good patients,

00:20:35.681 --> 00:20:36.981
and they ought to receive a percentage of

00:20:37.001 --> 00:20:37.201
that.

00:20:37.602 --> 00:20:39.182
Right now, what we have,

00:20:39.242 --> 00:20:40.403
particularly in physical therapy,

00:20:40.423 --> 00:20:44.684
is you pay clinicians to progress and pay

00:20:44.726 --> 00:20:47.047
them more to get out of clinical work.

00:20:47.067 --> 00:20:48.386
We have the highest percentage of

00:20:48.426 --> 00:20:50.228
clinicians not doing clinical work in

00:20:50.248 --> 00:20:52.189
physical therapy than any other so-called

00:20:52.269 --> 00:20:53.269
ancillary that I've seen.

00:20:53.750 --> 00:20:55.471
We only have twenty to twenty five percent

00:20:55.530 --> 00:20:57.813
on an FTA basis of PTs actually treating

00:20:57.853 --> 00:20:58.232
patients.

00:20:58.292 --> 00:20:58.532
Why?

00:20:58.573 --> 00:20:59.854
Because we pay them more not to treat

00:20:59.874 --> 00:21:00.253
patients.

00:21:00.713 --> 00:21:01.714
That has to be reversed.

00:21:02.115 --> 00:21:03.675
We want to be a doctoring profession,

00:21:04.056 --> 00:21:05.737
but we don't want the responsibility,

00:21:05.777 --> 00:21:07.097
the compensation models.

00:21:08.638 --> 00:21:10.319
And a lot of this I blame on

00:21:10.359 --> 00:21:11.421
professional managers.

00:21:11.701 --> 00:21:13.961
Most clinicians I know after a while want

00:21:13.981 --> 00:21:14.482
to be on.

00:21:15.042 --> 00:21:16.703
within their own private practice of a

00:21:16.763 --> 00:21:18.085
practice, right?

00:21:18.144 --> 00:21:19.306
But, you know,

00:21:19.365 --> 00:21:21.167
the system doesn't let them because the

00:21:21.228 --> 00:21:23.509
metrics and the operating platform are

00:21:23.549 --> 00:21:25.830
built around ease and shiny books and

00:21:25.871 --> 00:21:26.491
boardrooms.

00:21:26.511 --> 00:21:28.073
They're not built around what's best for

00:21:28.093 --> 00:21:29.534
the long-term sustainability of the

00:21:29.574 --> 00:21:29.974
practice.

00:21:31.375 --> 00:21:32.737
What's your final shot?

00:21:33.317 --> 00:21:34.917
What's the thing you hope people take away

00:21:34.979 --> 00:21:37.099
from not only this first article,

00:21:37.140 --> 00:21:39.162
but from the series if they read through

00:21:39.201 --> 00:21:39.261
it?

00:21:40.309 --> 00:21:42.530
Examine your own company based on the five

00:21:42.570 --> 00:21:43.332
dysfunctions.

00:21:43.551 --> 00:21:44.553
How are you performing?

00:21:45.032 --> 00:21:46.933
If that can change over time,

00:21:47.734 --> 00:21:48.875
it could really benefit you.

00:21:48.994 --> 00:21:50.717
It's all about the conversation and

00:21:50.757 --> 00:21:52.317
raising the sensitivity level.

00:21:52.397 --> 00:21:54.858
And why repeat these historical patterns

00:21:54.898 --> 00:21:56.640
of failure?

00:21:56.660 --> 00:21:57.580
The only way you can,

00:21:58.483 --> 00:21:58.683
you know,

00:21:58.743 --> 00:22:01.066
mitigate that is by having a check and

00:22:01.086 --> 00:22:04.528
balance system, having people push back,

00:22:04.567 --> 00:22:06.249
having people question things,

00:22:06.509 --> 00:22:08.910
all progress is made through deliberation,

00:22:09.290 --> 00:22:11.031
debate and debate.

00:22:11.172 --> 00:22:12.491
And you have to have that within an

00:22:12.551 --> 00:22:13.313
organization.

00:22:13.968 --> 00:22:15.828
And you have to have people pushing back

00:22:15.909 --> 00:22:16.630
against, you know,

00:22:16.650 --> 00:22:17.931
a so-called professional manager.

00:22:17.951 --> 00:22:19.391
Why are you firing founders and

00:22:19.451 --> 00:22:20.231
entrepreneurs?

00:22:20.271 --> 00:22:22.393
Just because you want to scale, you know,

00:22:22.413 --> 00:22:24.253
why are you making these great claims and

00:22:24.273 --> 00:22:27.096
hiding behind them and calling growth,

00:22:27.135 --> 00:22:29.278
growth when our free cashflow isn't,

00:22:29.458 --> 00:22:31.298
isn't you know, what it should be?

00:22:31.638 --> 00:22:33.279
Why are we not making the investments in

00:22:33.319 --> 00:22:33.880
clinicians?

00:22:33.900 --> 00:22:35.101
Because our, our,

00:22:35.161 --> 00:22:36.821
our cash is now tied up and paying

00:22:36.862 --> 00:22:38.042
the interest on the debt,

00:22:38.083 --> 00:22:40.664
not even the principal on the debt those

00:22:40.684 --> 00:22:41.244
kinds of things.

00:22:42.676 --> 00:22:44.356
I think one main takeaway is healthcare is

00:22:44.416 --> 00:22:45.597
not like other industries.

00:22:45.817 --> 00:22:47.298
You can't fix it with money, scale,

00:22:47.317 --> 00:22:48.057
or spreadsheets.

00:22:48.298 --> 00:22:50.578
And to be honestly successful long-term,

00:22:50.598 --> 00:22:53.000
you need stronger operators who understand

00:22:53.059 --> 00:22:56.080
both the business and the whiskey, sorry,

00:22:56.121 --> 00:22:58.280
clinical side, don't screw up the whiskey,

00:22:58.580 --> 00:23:00.201
who build the systems that support,

00:23:00.221 --> 00:23:02.461
not replace the people delivering care.

00:23:02.781 --> 00:23:05.643
The fact that- And in today's

00:23:05.903 --> 00:23:08.084
post-inflationary world,

00:23:08.203 --> 00:23:10.064
you cannot operate the business the same

00:23:10.084 --> 00:23:12.404
way you did today like you did pre-COVID.

00:23:13.240 --> 00:23:14.820
And you have to mitigate against the

00:23:14.861 --> 00:23:16.542
dysfunctions that cause you to fail,

00:23:16.583 --> 00:23:18.183
but you also have to have better people

00:23:18.223 --> 00:23:18.503
around.

00:23:18.525 --> 00:23:19.806
You have to have better board members,

00:23:19.846 --> 00:23:21.366
not these so-called professional board

00:23:21.426 --> 00:23:23.167
members that hop anywhere.

00:23:23.588 --> 00:23:25.089
Not because somebody invested a lot of

00:23:25.130 --> 00:23:26.711
money and they have a trust fund that

00:23:26.750 --> 00:23:27.872
allows them to be there,

00:23:27.892 --> 00:23:29.733
but they bring you nothing in terms of

00:23:29.794 --> 00:23:31.255
experience or expertise.

00:23:31.815 --> 00:23:32.736
And you have to have a healthy

00:23:32.796 --> 00:23:34.657
conversation around what works.

00:23:36.124 --> 00:23:38.005
So if you're building or thinking about

00:23:38.045 --> 00:23:39.805
building a healthcare platform, this,

00:23:39.884 --> 00:23:41.185
what we talked about today and the rest

00:23:41.205 --> 00:23:42.526
of the writing is the stuff that actually

00:23:42.566 --> 00:23:43.606
works, not just growth,

00:23:43.686 --> 00:23:44.707
not just valuation,

00:23:44.747 --> 00:23:46.667
but whether the thing actually works.

00:23:47.067 --> 00:23:47.788
If this hit,

00:23:48.488 --> 00:23:49.709
share it with someone building in

00:23:49.749 --> 00:23:50.148
healthcare.

00:23:50.169 --> 00:23:51.449
And if you want more of this thinking,

00:23:51.929 --> 00:23:52.890
we'll give you the link to Larry's

00:23:52.930 --> 00:23:54.089
Substack, the operator.

00:23:54.289 --> 00:23:57.250
That's where these ideas live first.

00:23:57.270 --> 00:23:57.951
Thanks, Larry.

00:23:57.971 --> 00:23:59.251
Thank you, Matt.