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Dear Friend,
Some large physician services companies have a junk bond problem, a distressed one, at that.
An article in the Wall Street Journal (Saturday/Sunday edition, September 28 – 29, 2019) revealed that the corporate debt of large physician services companies, TeamHealth and Envision Healthcare, was now trading below the distress ratio.
These, and other, healthcare companies’ junk-rated bonds are now trading below 80 cents on the dollar, the upper limit of the ratio.
The cause? Well, first, these companies loaded up on debt to fund their private equity backed acquisition and expansion. And, more telling and potentially troubling for their competitors in the market for physician services such as emergency medicine, anesthesiology, and other hospital-based specialties, is that the national push for a “solution” to the so-called “surprise medical bill” problem is a major cause of the financial distress.
Traditionally, the healthcare sector, which accounts for about one-fifth of the U.S. gross domestic product, has been seen as a defensive sector for investment. In other words, it’s been seen as a safe sector even when the economy is in a downturn. But now, cracks are developing.
I’m certainly not giving you investment advice so don’t for a moment think that’s the take away for you here.
Instead, if you are a physician group leader, consider that although the large players have many advantages, some of those advantages easily flip into weaknesses.
For example, your 70 physician group isn’t able to float even junk rated bonds. But there are other sources for financing and expansion on your scale.
On the other hand, the very, very large groups which can turn to the markets for financing, in this case debt financing, can easily become starved, even to death, by the inability to continue to feed.
For those focused on the size of an enterprise, size is seen as bringing stability. But, as in Yin and Yang, it can also bring fragility.
And, that fragility brings opportunity, that is, opportunity to others.
Why not make it to you?
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| | Tuesday - Success in Motion Video: Strategy, Structure, and Success
Watch Tuesday's video here, or just keep reading below for a slightly polished transcript: |
| | I want to talk this morning about the relationship between business strategy and business structure and success, success for your medical group, for your facility, really for whatever kind of business that you’re running.
Unless and until you’ve developed a strategy for what your business is going to pursue, what it’s going to become, then you really have no effective clue on how to structure the overall business itself.
I’m not talking about structure in terms of should it be a corporation or an LLC. And, I’m not talking about structure as in a fully participatory club-like structure versus a tight corporate structure, or a strong leader structure.
Instead, what I’m talking about is the structure of the business itself.
For example, if you’re establishing a new radiology group, is it a group that is going to be only working at a single hospital (whether or not I think that’s a mistake)? Is it a group that’s going to work at multiple hospitals? Will the group work only in County "Y," or only in the entire State "X," or in a region of the country?
How you structure your business can be effectively determined only after you know what your overall business strategy is. Doing it backwards is just building or acquiring for building’s sake, for acquisition’s sake. It’s not staying on focus, on point.
To be successful, you need to have that focus, and you need to stay on point.
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| | Wednesday - Medical Group Minute Video: I'd Rather Go Somewhere ElseWatch the video here, or just keep reading below for a slightly polished transcript:
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| Over lunch one day, my son told me that he had recently bought a Subway sandwich from the location on his college campus at U.C. San Diego. He said that when he asked for olives, the guy behind the counter placed three small olive slices across the foot-long sandwich. When my son asked for additional olives, he said the guy put two more slices on it.
Had he like the product and the service, my son probably wouldn’t have said a thing about it to me or to anyone else. But when he received poor service, a crummy sandwich and no value for the money, he told everyone. And, importantly, he said that if he were hungry and had any choice other than a Subway store, he’d go somewhere else, even though he knows that each store is independently owned.
Of course, this is hardly a new observation – I’m not simply speaking about Subway sandwiches. After all, there are old expressions like “one bad apple spoils the bunch.”
But have you considered that the same effect applies to statements made, and actions taken, by members of your group? That one snide comment to a nurse, one rude remark to a patient, one event of tardiness, can become both a stain on your entire group and a broad brush with which to paint it?
There are multiple lessons for medical groups contained within the Subway story:
Certainly, you need to hire for competence. But you also need to hire for personality and the understanding that no matter what the medical specialty, it is a service business.
There is a need to manage personnel to meet high customer expectations, and that, of course, means that your group must have leadership and that leaders must be permitted the time,and incentivized, to actually manage.
And, your group’s owner and employee/subcontractor physicians must clearly understand the group’s code of conduct and customer service expectations, they must be trained to meet or exceed those standards, and they must be incentivized for good performance.
Of course, you do have a choice: you don’t have to take any of these actions. But then, your “customers” can eat somewhere else.
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| | Thursday - Podcast: Why You Must Know About A University's Captive Medical Group Filing Bankruptcy |
| Listen to the podcast here, or just keep reading for the transcript
On November 7, 2018, the medical group affiliated with Michigan’s Wayne State University Medical School, University Physician Group, which does business as Wayne State University Physician Group (“WSUPG”), filed Chapter 11 bankruptcy.
How is that even possible, you ask? After all, you were told that there’s safety in what is essentially hospital employment.
Well, it’s not only possible, it’s likely the tip of the iceberg, not only for “stand alone” captive physician groups like WSUPG with its 873 employees, but for entire hospital hospital systems made more fragile, not stronger, by their size.
Hospital systems across the country suffer from bloated fixed costs, huge payrolls, layers and layers of bureaucracy, and management by managers, not by entrepreneurial thinkers.
Instead of bringing what the proponents of hospital-centricity promised would be stability, the actual result is becoming much different: The larger the hospital-centric system is, the more sensitive it is to declining payments from private payors, and the movement of procedures out of their facilities to freestanding, and often independent facilities, from clinical laboratories, to imaging facilities, to ASCs. And now, the federal government is getting increasingly into the act: It has cut reimbursement to hospital outpatient clinics, and has signaled its decreasing support for outpatient surgery performed in hospital outpatient departments (“HOPDs”)as opposed to in freestanding ambulatory surgery centers.
Hospital employment was hardly ever a good deal for any physician. The difficulty in holding a hospital together is tough enough. The difficulty in holding a hospital system together is even greater.
But both pale in comparison to the challenges of holding a hospital system plus its directly or indirectly employed physicians together. A shock that could have been absorbed by the pure hospital-side of the business can be fatal to the enormously expense-ridden hospital-plus-physician structure.
Why You Need to Know
1. Employment, directly or indirectly, with hospitals is far from “safe.” In fact, it may be far riskier for physicians.
2. In the event that a tightly aligned physician group fails, the employed physicians have no offices, no patient records, no staff, no “nothing” readily available to them to re-start independent medical practice.
3. For outside groups, the failure of a hospital-controlled medical group presents the ability to cherry pick physicians who may be desperate for quick reemployment. That is, unless those physicians are barred from accepting employment in the area due to ill negotiated covenants not to compete, assuming that they are enforceable.
4. The failure of a hospital-affiliated medical group will disrupt referral patterns, presenting opportunities on both the services-side and the facility-side for independent physician practices and their affiliated facilities.
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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 here.
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| | | | | | Stay tuned! Our new website is launching within the next few days!
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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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