Ask An Expert

Q:

My investment firm is considering the purchase of a physician group. Other than the typical financial measurements of EBITDA, Net Revenue, Overhead Percentage, etc., what metrics should we be watching to consider the opportunities to improve performance after the purchase?

J.M., Colorado
 
 
 

A:

Naturally your purchase price will be some multiple of EBITDA. We find great opportunities in the physician group space to improve operations and enhance EBITDA quickly.  We would recommend considering the following metrics in your evaluation:
 
Tracked point in time or month over month:

5. Days in Accounts Receivable (Target 30-35 days)
5. Monthly New Patient Visits (Target 60 per physician in most surgical specialties and 25-30 in ongoing care specialties)
5. Copay Collection at Time of Service (Target 90%+)
5. Prior Authorizations & Referrals Collected Prior to Date of Service (Target 98%+)
5. Time Interval from Date of Service to Claims Filing (Target 1 day for clinic encounters and 2 days for hospital/ASC encounters)

 
Tracked in three month rolling averages or quarterly for trend and seasonality indication:

5. Monthly Total Encounters per Provider (Target varies per specialty)
5. Gross Charges and Net Revenue per New Patient (Target varies per specialty)
5. Surgical Procedures per New Patient (Target varies per specialty)

 
These metrics will help you identify the areas for improvement post close. Improving the performance quickly post close will be critical to maintain physician-seller relationships through income repair post close.


 

Q:

My company recently hired a young man at the request of an executive’s friend and we are struggling to get productivity out of this individual. Our business culture is hard charging and this and other millennials don’t seem to cut it. What are we failing to do to accommodate this generation?
 
K.A., Texas
 
 

A:

First and foremost, I am not willing to condemn or abandon an entire generation. Just as other generations, I find a wide variety of personalities, intensities and goals among all generations. Every young professional needs some level of coaching and leadership to reach potential within your culture.
 
Filter: One qualifier I implemented years ago that applies anytime someone in my network asks me to help another individual – the individual I am going to help must make the first contact with me. I will try to help anyone who asks. Often, a friend will ask me to help their kid find a job and I found some who did not really want to work. Those who will pick up the phone and call me personally (not email, not text) to ask for help have had a much greater success rate. If they will not call me or need another to be on the call with them, they probably are not interested.
 
Fundamentals: With any new professional, it is very important to clearly set their top three priorities and standards of performance. The most difficult part of a transition is identifying priorities.
 
Flexibility: The pop culture of management pushes that millennials need to be provided job flexibility to be successful. That may work in your industry, it may not. Be sure you have clearly set time and productivity expectations, particularly if the role is not fixed at a desk.
 
Feedback: Many of the changes in education over the past 20 years revolve around a lot of teamwork, group projects, etc. Many younger professionals have not worked much independently and have not been individual evaluated very often. Be sure you are providing consistent, cultivating feedback. Make the team member ask questions. Schedule brief updates daily - make them quick 5-7 minutes long. Extend the interval when you are comfortable.
 
Forgive: Acknowledge everyone makes mistakes as they learn professionally. How a leader reacts to those mistakes determines the future. Take mistakes in stride, coach and support to correct actions and behaviors. As a leader we must adapt our style to the team member, not them adapt to us.  Many young professionals got a trophy for losing and did not get corrected for concern over their self-esteem. When you provide constructive criticism, it better be constructive. Start soft and build intensity over time so the millennial can grow into processing the feedback.
 
Don’t act like we all were instantly effective professionals. We all grew into our current form. Give all of your leadership part of the relationship and ask them to give all of their team member part of the relationship.



 

Q:

My service industry traditionally compensates producers on a commission basis with producers keeping a significant majority of their produced revenue.  The industry is consolidating and changing dramatically in how customers are served and there is a significant difference in compensation between owners/top producers and those starting out. I am working to grow my team and want to change how compensation works with a base salary and incentive system that will keep producers motivated but also keep them engaged in the overall performance of the company, not just their individual performance.
 
M.C., Tennessee
 
 

A:

Your producers in that environment will typically be highly competitive. Some will be focused on preservation at the bottom of the compensation range and still want significant upside potential.  Psychological theory of incentive compensation dictates that incentive compensation should be at a minimum 10% of overall compensation and paid at least quarterly to keep the team member motivated. That psychological standard should be easy to meet in your industry.
 
Option 1: If competitiveness within the team is a key, you might want to set a bonus percentage directly tied to production over and above a threshold. For instance, if your traditional commission percentage is 75% to 80% of production, a base salary of $80,000 and 70% of revenue generated over $100,000. This gives you a low-end production level that covers your overhead cost. Threshold and percentages can be adapted based upon the specific industry/margin/commission standards.
 
Downsides to consider include that the business owner effectively shows his expenses to the producers and the competitiveness between producers may not interact well with your goal of engagement in the overall performance of the company.  The fixed nature of the plan also limits flexibility for the business owner.
 
Option 2: Creating a hybrid compensation structure with a base salary, fixed commission and a flexible discretionary bonus may help meet all goals defined. The discretionary portion will be the tool to improve engagement.
 
For instance, you might pay the same $80,000 base salary with a 50% bonus above a $100,000 revenue threshold and then supplement with a team oriented discretionary bonus that roughly equates the remaining 20% target commission figure. You will need to be sure your discretionary bonus is tied to team related performance metrics – new customers, number of proposals submitted, close percentage, etc.  We also find there to be benefit in moving the discretionary bonus amounts around when paid quarterly, a little more than the target percentage one quarter, a little less the next.
 
Both options should target the appropriate target total compensation. We find the hybrid approach to be helpful in retaining owner flexibility while keeping the focus on production and positive behaviors leading to production. The mystery of the discretionary amounts is helpful in keeping team members focused on the big picture. We find that this structure also helps prospective team members self-identify their willingness to work for the team and helps us eliminate prospective team members who might be lone wolves.