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February 3, 2022 The Comp Plan Wins

February 3, 2022

The Comp Plan Wins

Earlier this week I was reading a study about physician compensation within integrated delivery systems. We’ll get back to that, but it took me back to one of my greatest ‘sales fails’ ever.

Confession time…since I am confessing, I sometimes wear my house slippers when on a video call.

We had been chasing this business development partnership with a massive player in our space for over a year. They had the brand, an army of salespeople out talking to doctors, a way to get into places we could not go alone. A joint ‘go-to-market’ deal with them would be a game-changer for us.

Finally, they invited us out to HQ to meet with the bigwigs and we shook hands on the deal. In the cab (there is the timestamp on this story) back to the airport, we fist pumped and started talking about how many people we’d need to hire to handle the growth.

Then nothing.

More nothing.

We did all the things we had discussed with the corporate suits to get our joint offering mobilized with their sales force, but no leads materialized. We discussed, psychoanalyzed, dissected, altered, begged, and even wore our lucky socks.

A few months later, we headed to the national sales meeting to make a big push. I delivered a great presentation and killed the room…great value proposition for your clients, helps sell your product, overcomes the advantage of your biggest competitor, yada yada yada.

I felt great all day.

Until we got to the after-dinner reception.

Did I tell you this was a national sales meeting? Yep, that means some people were liquored up pretty good. One of them was one of their senior reps that I knew well. Which means I got the truth…the corporation would keep almost all the revenue we were sharing and give only a token pittance to the sale reps in their commission.

No commission means no attention, which means no sales for Timmy.

This deal was a big nothing burger for us.

Individual comp plans trump business-to-business agreements all day, every day.

How is that connected to physician comp?

The study from the RAND corporation, looking at data from November 2017 to July 2019, found that 22 health systems still pay their employed physicians predominantly on volume, not value. Volume drove 68% of the personal comp for primary care physicians and 74% for specialists.

Driving more volume was the main way docs could make more money.

I had to laugh.

We’ve regularly chronicled here the lack of real, move the needle progress from the first 12 years of value-based care since the Affordable Care Act was passed. There are many reasons we were, are, and continue to remain skeptical, but for Pete’s sake, what the heck?

The whole justification (supposedly) of health systems buying up physician practices was so the ‘integrated’ delivery system could focus on ‘value,’ not ‘volume.’ But you still pay the physicians for more fee-for-service claims?

Someone needs some lubricated truth telling here. Was there another motive?

January 27, 2022 Rings vs. Cash

January 27, 2022

Rings vs. Cash

We sometimes hear about famous superstar athletes, later in their careers, who have made gobs of money and decide to take a lesser contract to join another team because it gives them a better chance to win a championship.

“I will figure out how to live on only $20 million, but I want to win it all.’

I think this is the etymological origin of the phrase ‘first world problems.’

Anyway, the idea sort of came up in conversation. But without some of the zeroes.

I was talking to a physician about the strategic options facing his practice. Like a lot of medical groups, the partners are at a fork in the road with a decision coming quickly. The story has unique particulars and more group dynamics in play than a Succession family therapy session, but in short there are three options on the table: the group could stay independent, sell to the hospital, or sell to a private-equity group doing a roll-up in their specialty.

Sounds familiar. Those choices, or some variation on the theme, are in front of a lot of groups these days. So, we talked, we processed. It is a big decision.

Most of the conversation was around the topics I’ve explored with physician many times – the differing personal objectives of each of the partners; the interplay between fear and greed; the inevitable cognitive bias of seeing nothing but upside in the preferred option vs. nothing but downside in the alternatives; the other bias of seeing risks in the change options but not properly weighting the risks of maintaining the status quo.

We talked math and money, buyout amounts and ongoing salaries and the challenge of comparing the future financial value of differing models.

Of course, we discussed that buyers want to buy for their own reasons and their tax status doesn’t say diddly about how they will exercise that control.

But then we talked about picking the winning team and how that matters, or doesn’t, alongside the personal financial evaluation. It was a new twist in the equation.

It seems that both the health system and the PE-backed platform company are trying to snag the same set of independent practices in town. Part of the pitch from both is the practice would be joining this bigger, dominant player. Yet neither buyer really knows what the other was planning. Both could not successfully execute their plan because there were not enough docs to go around.

One was dramatically out-executing the other, moving much, much faster. (Of course, the money guys were running circles around the hospital…come on, that was easy.).

Which raised a new dimension in the practice’s decision…how much of a discount should you apply to the proposed deals if you believed, or doubted, the buyer’s grand vision could become reality?

Sometimes, if you want to win the championship, you pick the best team instead of working to maximize the best contract.

As if the decision were not complicated enough…

January 20, 2022 Three Handy Hacks

January 20, 2022

Three Handy Hacks

I am not an IT guy and don’t play one on TV, but the hotel where I stayed last night had better pillows than the Holiday Inn Express, so I have that going for me. Fortunately, I have a bunch of smart IT people on my team and am quick to punt the heavy lifting to them.

Invariably though, IT issues come up in strategy or business partner conversations and we non-technical executives don’t always have the luxury of phoning a pocket protector friend. ‘Fake it til you make it’ might have been the past strategy, but Elizabeth Holmes killed that idea.

I am here to help. From three different conversations this week alone, here are three things to keep handy when the conversation turns to big IT spending decisions.

First, a national retail primary care practice (big money behind it…you’d know the name) let the prior CIO make decisions with his ego and he decided to build a home-grown PM and EMR. That drove them into a cul de sac that could not scale. Hobbled the business. He is gone and now they are staring at an expensive proposition to back out and start over.

Lesson: Never start the planning and decision-making with IT hand-waving and hocus pocus. Business strategy drives IT. The smart folks here knew how big this was going to get given the money being invested. A flying DeLorean might be cool, but large companies don’t run on gadgets.

Second, a medium-sized practice – about two-three years on their platform – was evaluating alternatives because the docs hated the EMR, and the finance people thought the PM was trash. They were very close to signing a replacement deal when someone was bold enough to ask how the new one would be better since they had done nothing to address the problem of having no one in the practice to help manage implementation and ongoing optimization.

Lesson: The software may suck – many are bad. But more often than not, the frustrations are more due to all the poor work that must be done around the software. Writing checks to the vendors is the easy part.

Third, a dinner discussion got deep into the weeds about providing data to physicians – ‘business intelligence’ we call it to sound intelligent about business. Charts and graphs, self-service reporting, mobile apps, real-time or periodic data…it was a robust discussion. Then the air went out of the room when people began to confess of building great tools that the users never used (so why are they called ‘users’ and is it ironic that we have the same word for partakers of EMRs and illicit drugs?). Then the truth came out. ‘They still just ask someone their question.’

Lesson: Just because the technology ‘can’ doesn’t mean the users ‘will.’ Solutions go better when the users pull than when the IT folks push.

Three good hacks to keep handy when your IT wizards start asking for a lot of money.

And having a good pillow helps, too.

January 13, 2022 Do We Need Moving Vans?

January 13, 2022

Do We Need Moving Vans?

I have long been a fan of ‘States’ part of the ‘United States of America,’ liking the idea of 50 laboratories trying to figure out this messy thing we can democracy. (The ‘united’ part is pretty important, too, but is a bit tattered right now. But that is for another day.)

Sure, that means we frequently get a lot of whacky experiments coming out of these diverse labs. At times, we need Mom and Dad to step in say, ‘No, lighting the cat on fire and throwing him in the dryer is not a good way to get him dry, no matter how much you think this is a good idea.’

And slavery…let’s shut that one down, too. Really bad idea.

But generally, I support the principle. This stuff is hard, there are over 350 million of us and we are fairly diverse lot. We need to try different approaches, especially on the tough nuts to crack.

Healthcare is one …important, complicated, expensive, some critical work that is not economically lucrative, lot of opinions on what matters most. Definitely in need of innovation, so sure, let’s get 50 states working on different ways to skin the cat.

Probably shouldn’t use that metaphor given the earlier paragraph.

Then I read about the latest single payer, government-run proposal gaining steam (again) in California and my principals start to get personal.

Right up front, I am not a single-payer guy. Could give you 100 reasons for my position, but here is one: I frequently fly through the Denver airport. 30 years ago, the construction cost was a few billions over budget; the current remodel looks a lot like the original deal. Enough said.

But I prefer learning through real life experiments and single-payer advocates have their talking points. But California ain’t North Dakota, or even Indiana for that matter. Stuff there tends to impact the rest of us in big, unforeseen ways (see: Kardashians, yoga pants pandemic).

This time, however, the idea was not news from a distant land.

Many of ALN’s clients are physician practices in California. Most don’t like this idea. Maybe we’ll soon have a lot more clients in Nevada or Arizona.

Then I got to the funding mechanism to pay for this.

Business tax for ‘the privilege of doing business in the state’ (yes, the legislation actually says that): Check

Payroll tax if you have employees there: Check

Additional income tax on many of our employees: Check

I still have about 93 objections, one of which is that I live in Colorado and don’t get a say on this, but then again, I don’t have to drive on the 5.

Let’s see how this plays out, but for those of you who like to make long-term, speculative bets, you might check out taking future options on office space in Primm, the first town in Nevada on the highway from Los Angeles to Vegas.

January 6, 2022 Intergenerational Knowledge Transfer

January 6, 2022

Intergenerational Knowledge Transfer

The holidays were great at our house because all three kids were home. Between them and their friends that hung out with us, the house was full of the energy and perspectives that 20-somethings bring.

There was a lot of cross-generational learning going on. Of course, most of the information flow was one-way.

We old folks learned about Tik Tok influencers, fashion trends, crypto, Kanye and Elon. And because mom and dad bought the wine, the lessons were a lot more fun than high school algebra. It was awesome and though my ‘hip factor’ will fade faster than New Year’s dieting resolutions, right now it is as high as it gets.

‘Girl, I see your new Christmas clothes. You dripping!’

Don’t press. That is all I have got.

There was also a little sharing that flowed the other way, some history flowing downstream to inform the present. We talked a bit about Turducken, the Muscle Shoals music influence, and inflation.

Inflation? Really, Dad? If you must, at least pass the wine.

It is notable that anyone born after about 1970 has less understanding of inflation than I have of Charli D’Amelio. My ignorance makes me dull at parties (OK, I was already dull…it reinforces my khaki pants persona), but the other means that every person in your organization under the age of 50 really has no idea about what happens when inflation shows up and sticks around.

Take a second to take stock of who that includes at your place?

Oh, did you also count all of your physicians under age 50? How about the physician owners under 50, you know…the ones who get to keep what is left once all the bills are paid? Yeah, those conversations are getting real, aren’t they?

A key discussion topic in the business and market news is about how cost increases due to inflation are being passed on to the consumer. But what if you are in a market where you can’t pass on cost increases in your pricing? Like physician practices.

Anyone had any luck calling Medicare for a 5-8% price increase because your staff wages and supply costs are skyrocketing?

No?

How about the call to United or Anthem? [I know, I know…they seem to be doing just fine raising prices, whether there is inflation or not. A topic for another day…bring the wine for that one.]

This is a hard economic reality that will continue to dog physician practices in 2022 (so much for starting the year with a dose of rainbows and butterflies). Costs are going to rise, and prices mostly will not. Heck, we call it ‘reimbursement rates’ instead of ‘pricing’ as if to drive home the predicament even more.

Here is my learning from the holidays: leaders are going to need to have some patient but pointed educational conversations with their organizations about the impacts of inflation.

Don’t leave it to Tik Tok; a glass of wine might help.

December 16, 2021 Microscopes and Telescopes

December 16, 2021

Microscopes and Telescopes

I have a suspicion that I’ve used today’s story before, but I am too lazy to go back through the archives to check and am counting on the presumptions that a) you are not logging my blog topics, and b) whatever I might have said, whenever I might have said it was not so deeply profound that you burned it into your memory.

So yes, I am confessing to recycling an idea that probably wasn’t that memorable the first time. Consider today’s post the fruitcake of blogs.

Years ago, the CEO of one of my consulting clients said something that did, actually, burn into my mind. He noted that actionable strategic insight come in the intersection when information met perspective.

He happened to be in the beverage industry and noted that his truck drivers schlepping in and out of stores and restaurants had real-time information about what was really going on out there. He, a long-time and very smart industry veteran, had a great grasp of the tectonic forces changing the big landscape. It was when – and if – the two came together that good stuff could happen, that the company could make a move to gain an advantage.

As I was contemplating today’s topic, I found myself wandering between very micro, here-and-now type stuff (one more article on COVID, vaccines, worker shortages, wage increases) and the kind of large, systemic change kind of observations that we tend to miss because they happen slowly (over half of physicians now work for hospitals or corporations, some of the fastest growing franchises in the US are in some aspect of the home care space, the forecasted decade-long nursing shortage).

Flipping quickly between microscopes and telescopes can give you vertigo, but it is a useful exercise as we try to find some insight in the intersection of perspective and information. This is what leaders do as they steer their organization.

So, here is my friendly encouragement as we head into the holiday season…

2021, like 2020 before it, had a strong bias toward here-and-now information. News came at us in torrents as we all tried to figure out what was happening, what we knew and what was just a hypothesis. We’ve been making decisions on the fly just to keep it all right-side up. It has been heroic, but exhausting work.

But in truth, we have been heavy on the information inputs and need to step back a bit and mix in a good dose of perspective and see what insights can emerge.

I was going to get you a better gift for the holidays than a piece of advice, but you know…supply chain issues, stuff was out of stock, prices were high, etc. Besides, I did not know your size.

I can’t say thanks enough for you reading our thoughts each week. Hopefully, there is occasionally some value in there for you.

Have a great holiday and we’ll see you again after we flip the calendar.