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| Dear Friend,
They ran the business into the ground.
Many, most, or all have heard it.
No, it’s not “because I said so!” Rather, it’s the familiar, “you didn’t go to medical school to be in business.” It’s the recruiting cry of PE and of publicly held purveyors of physician employment.
Many predicted that the financial behemoths run by the smartest guys in the room would swallow up every physician on the planet. There’d be no need for independent practice.
Yet, like the result of the rush into employment by staff model HMOs in the 1980s, the revolving door of reality is whacking many of these deals in the ass.
In an echo of 2023’s business failure of Envision Health leading to its Chapter 11 Bankruptcy and the evaporation of over $5 billion of investor equity, last week, Florida-based Cano Health, a publicly traded physician group and medical center operator owing $1.26 billion to creditors, filed for bankruptcy court protection.
According to filed documents, Cano had 300 employed providers (physicians, nurse practitioners, PAs) across 95 medical centers. It had affiliate relationships with over 600 additional practices.
According to news reports and court filings, Cano got into its financial death spiral as a result of higher interest expenses and unprofitable acquisitions. To quote their CEO, “few, if any, of the anticipated synergies and benefits of these acquisitions ever materialized and they ultimately resulted in unprofitable acquisitions, operational, inefficiencies, and an inflated cost structure.” To quote me, “Oops!”
Cano’s prepackaged reorganization plan calls for approximately $1 billion of secured debt to be converted to new debt and full ownership of the company’s equity. Goodbye unsecured creditors. Goodbye former shareholders, including, I’d guess, those who sold their practices and took Cano stock in payment.
The outcome of Amazon’s latest push into healthcare (post the 2021 abandonment of its Haven joint venture with J.P. Morgan Chase and Berkshire Hathaway, and the 2022 closing of its Amazon Care medical care service), Amazon Health Services, isn’t as grave as bankruptcy.
However, it’s just as impactful for the few hundred employees to be laid off from its One Medical and pharmacy divisions, as announced earlier this month. One Medical is a membership-based chain of primary care clinics.
The point for you to consider is that although conglomeration will continue, creative destruction à la Joseph Schumpeter will continue, too.
Independent practice and a wide range of physician-led ventures will always have a role, in some cases formed by picking up the opportunities forfeited by prior players.
Just because robot “manned” warehouses and Toon Townish delivery trucks might bring a book or a blender, doesn’t mean that they can deliver a blepharoplasty.
Just because a manager with a “six sigma black belt” can get a widget factor to hum with efficiency, doesn’t mean that he or she can pull off the merger of hundreds of “providers”; just ask the CEO of Cano Health.
What do you want to do? There is opportunity everywhere. Let’s talk.
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| | Wednesday - Socialism Is Alive and Well Within Medical Groups - Medical Group Minute
Watch the video here, or just keep reading below for a slightly polished transcript:
Socialism is alive and well, and I'm not simply talking about the socialistic charade of Hugo Chavez.
Instead, I'm talking about the employee or subcontracted members of your group who, even though they are being paid every penny due to them pursuant to their employment agreement or subcontract, have the misguided mindset that "there is money missing" or that the partners are "stealing money," as if any purportedly "missing" or "stolen" money would, in any event, be theirs.
Perhaps this is simply a symptom of a larger societal problem: the cancer of social justice which is simply a pig-in-a-skirt term for an entitlement attitude magnified to the level of socially acceptable theft.
But whatever it is, it's a cancer within your group. If allowed to fester, it will, at best, cause dissension within the ranks. At worst, it will result in employees and subcontractors running off to hospital administration to complain about their "unfair" treatment, the likely result of which will be their use by the administrator as weapons to destabilize your group's leadership structure.
Yes, to use another socialist analogy, this time from the other side, your employees and subcontractors will be used as useful idiots to destroy your leadership and, in the long run, to destroy the idiots themselves.
If your patient had cancer it would be removed. If your group has cancer . . .
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| | | Listen to the podcast here, or just keep reading for the transcript.
You worked both hard and smart for years and developed a successful practice, let's say as a cardiac surgeon.
Although the expense of running an office is punishing, you're actually running a true business and you've been able to make significant income. In fact, you've been able to make well over $1 million a year in personal income.
But now the hospital approaches you and says that they are building an ACO – won't you join with them and become an employee of their sponsored foundation or medical group? The pitch in part is that you'll no longer have to bear the brunt of running a practice and, especially, of paying for those administrative costs, as there is an economy of scale across the entire managed group of physicians.
When it comes time to discuss compensation, you calculate, consistent with the hospital’s pitch, that a share of the administrative cost savings should accrue to you. So, instead of earning $1 million it should be $1 million plus.
The hospital is shocked -- or at least that is what they feign. You're told that even your $1 million is a fluke – that at the 75th percentile of fair market value compensation pursuant to their consultant's survey, the highest level at which they'll do a deal, the most they can pay you is in the $700,000 range. After all, they state with claimed moral superiority (and the prospect of banking $300,000 plus of your money), you do want to be compliant, right?
But of course, $700,000 is not as valuable as the million dollars you earned before. In fact, $1 million from the hospital is not as valuable as $1 million from your own practice. That's because even though you had the responsibilities of running the business you also had the authority of running the business -- you were the captain of your own ship. And, the term of an employment contract comes to an end. If and when that employment contract is renewed, compensation tied to so-called fair market value will by definition spiral down as more physicians become employees of entities which are using valuation surveys to set compensation.
It's a recipe for failure.
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| | Help Us Help You With Helpful Content
What tailored content would you most like to see during this
time? How can we focus on solutions to your most pressing strategic concerns?
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| | | | 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.
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| 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.
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| | | | 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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