Subject: Practice Success

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June 2, 2023
Dear Friend,

Our Monday blog post, Memorial Day 2023, is an annual feature. You can follow the link to read the post online, or just keep reading for the short post.

We analogize business to war. Litigation to battle. Negotiation to struggle.

We tend to forget that our ability to engage in analogies while safely ensconced in our homes and offices is due in large part to those who gave their lives in real war, in real battle, in real struggle.

Let’s remember.

Tuesday - Private Equity Bankruptcies - Lessons for You - Success in Motion

Watch the video here, or just keep reading below for a slightly polished transcript:

On May 15th, Envision Healthcare and hundreds of its related entities and affiliates, including Amsurg and, apparently, all of the Amsurg entities, filed jointly-administered Chapter 11 Bankruptcy.

Its corporate owner, KKR, the giant private equity and investment firm, is likely set to lose its entire investment, more than $5 billion. According to the bankruptcy filing, Envision is looking to find a wholesale buyer for Amsurg – in other words, an entity to take over its entire Amsurg division with its 250 or more ambulatory surgery center affiliates. In addition to Amsurg, Envision is highly active in a number of physician specialties, including anesthesia.

What will end up happening to those businesses under a Chapter 11 restructuring is, at this point, unclear.

Moving to a more general discussion of the market, it's been a banner year in terms of private equity bankruptcies. It's highly likely that the push by the large payors to rachet down reimbursement combined with rising interest rates has had a tremendous impact on highly leveraged PE deals.

The term private "equity" is a bit of a misnomer. Private equity doesn’t, in general, simply use equity to buy: they use some equity and lots of commercial debt. And now, with interest rates having catapulted from near 0% to close to 10%, many of the PE-backed entities that were predicated on financing at 1% or 2% are unable to refinance or unable to afford to refinance.

Many private equity deals are done using a very simple playbook: cut costs to the bone. But w
hen they cut costs to the bone, they damage the ability of the business to succeed. Sure, cutting costs makes a business more profitable in the short run, but eventually, dramatic cost cutting takes a toll.

For medical groups and facilities searching for a buyer, private equity players, many of whom play by that playbook and many of whom are facing, or will soon be facing, the same interest rate pressures as Envision, are probably not ideal partners.

But there are other investors which are not private equity, some of whom play by a very different playbook. Non-PE investors are usually free of the necessity of satisfying investors who expect the funds in which they invest to close out after a few years, generally from five to seven, at which time the investors expect their money back, plus profit. 

Consider what a sale to private equity means, not only in terms of how they will run your business, but also as to whether a private equity firm has the wherewithal to survive. Those issues are tremendously important, especially if you continue to own an interest in the business as a minority investor.

Wednesday - Why Taking Control Is a Smart Contracting Tactic - Medical Group Minute

Watch the video here, or just keep reading below for a slightly polished transcript:

You’ve heard that old expression to the effect that it’s better to do and then ask for forgiveness than it is to ask for permission in the first place.

I’m not sure if that’s always right in a social setting, but in business it often works out in your favor.

After all, there’s a lot of conflicting interests, like the need to demonstrate the ability to take independent action.

But in the end, much of it is contextual. Eating the pie your mom made for the party tomorrow night at Aunt Sally’s isn’t one for which your initiative is going to be rewarded.

But there’s a related contract negotiating tactic: demonstrating control or dominance.

Lawyers and other negotiators know that controlling the drafting of documents engenders significant control over the outcome. Clients who think that it will save them money to let the other side present the initial draft are very short sighted, indeed. Psychologically, you’re now battling uphill - your deal point insertions are changes - you are pushing against the momentum of the printed word. And for some reason about which it makes no difference to attempt to explain, people in our society place an outsized value on what’s in print.

But let’s say that you’ve allowed yourself to get into that position. Now what?

One tactic that can be used to increase your leverage is to express dominance when making changes to the document. As in the old expression set out above, don’t go asking for permission; instead, command that changes be made.

“Please change 90 days to 180 days” is weak and wimpy. “Change 90 to 180 and get the document back to me by noon tomorrow” is strong and dominant. Is it guaranteed to get you 180 days? Heck no. Nothing is. But it’s more likely to bear fruit than the wimpy first example.

The same tactic plays itself out in other, more complex ways as well, all based on triggers placed in our minds decades ago.

Those who think this is some sort of testosterone driven notion, some voice and paper equivalent of road rage, have little to no understanding of human nature.

That’s why they’re willing to save a few thousand dollars up front to potentially lose millions later.
Listen to the podcast here, or just keep reading for the transcript.

Years ago, one of my former partners had a case in which a stock broker built up a huge book of business, only to have his clients "reassigned" to a famous heavy-hitter at the firm that took over the brokerage.

Your group may (does, if it's smart) provide services at multiple sites. What steps have you taken to protect the business that you've developed at those sites?

It's common for us to think about defense as building walls of sorts to keep foreign competitors out. For example, to keep Competitor X from the south side of town from taking over your relationship with Facility Y or Referral Source Z on the north side.

But depending on your practice specialty, it may be Facility Y or Referral Source Z that's planning on "reassigning" your group members to itself.

Protecting business relationships requires a broad approach. It's creating a combination of excellent medical services and customer service that creates an experience monopoly. It's also a sophisticated combination of nonsolicitation, no-hire, and other restrictive covenants in your agreements with facilities. And, it's also similar provisions and covenants not to compete and other protections in your agreements with your providers.

Restrictive covenants are creatures of state law and some provisions are favored or disfavored depending on location. But even if they are disfavored or even disallowed, there are alternatives. Each situation is different and the solution must be tailored to fit yours.

Each evening, your group's most valuable assets, your providers, walk out the door. Wouldn't it be great to know that they'll be back in the morning?
Calibrate Your Compass

Read our exclusive RedPaper to guide you through this evolving situation.

The coronavirus crisis caused a short-term economic crisis for many medical groups. Our RedPaper shows you the way out. Plus, many of the concepts discussed are applicable during both good times and bad.


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Books and Publications
We all hear, and most of us say, that the pace of change in healthcare is quickening. That means that the pace of required decision-making is increasing, too. Unless, that is, you want to take the “default” route. That’s the one is which you let someone else make the decisions that impact you; you’re just along for the ride. Of course, playing a bit part in scripting your own future isn’t the smart route to stardom. But despite your own best intentions, perhaps it’s your medical group’s governance structure that’s holding you back.
In fact, it’s very likely that the problem is systemic. The Medical Group Governance Matrix introduces a simple four-quadrant diagnostic tool to help you find out. It then shows you how to use that tool to build your better, more profitable future. Get your free copy Free.
Whenever you're ready, here are 4 ways I can help you and your business:

1. Download a copy of The Success Prescription. My book, The Success Prescription provides you with a framework for thinking about your success. Download a copy of The Success Prescription here.

2. Be a guest on “Wisdom. Applied. Podcast.” Although most of my podcasts involve me addressing an important point for your success, I’m always looking for guests who’d like to be interviewed about their personal and professional achievements and the lessons learned. Email me if you’re interested in participating. 

3. Book me to speak to your group or organization. I’ve spoken at dozens of medical group, healthcare organization, university-sponsored, and private events on many topics such as The Impending Death of Hospitals, the strategic use of OIG Advisory Opinions, medical group governance, and succeeding at negotiations. For more information about a custom presentation for you, drop us a line

4. If You’re Not Yet a Client, Engage Me to Represent You. If you’re interested in increasing your profit and managing your risk of loss, email me to connect directly.

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