The Path to Greater Value, Part 03: Professional Productivity
Paul continues his series on maintaining value in a down market, covering how PT business owners can set productivity targets, gain staff buy-in, and measure performance to raise EBITDA.
Full transcript
Generated from the episode audio and lightly edited for readability.
Good afternoon and welcome to another episode of Paul Martin's Guide to Finishing Well and the Martin Rehab M&A Advisory. Today we are going to continue on our extremely important series of how to maintain value in a down market. What we're going to talk about today is professional productivity. So what is the goal of driving value, maintaining value in a down market? Well, it comes down to driving IPIDA up, your cash flow up, increasing your IPA, and driving your risks down. So, what we're talking about today are strategies to increase your IPA.
Now, we still have the bad news. The economy is struggling. Multiples are down. But we also have good news. You can increase your IBA. You can lower your risk and you can drive significant value in this market. There continues to be 20 plus well financed acquirers in this current industry that are looking to make great deals and there are still great deals out there. So where do I start? Well, we have to start with your performance baseline. Okay? And today we're talking about professional productivity. So what's the performance baseline for your company and how do you compare to the performance baseline?
And we're going to compare you to high performing companies. And we're going to draw those comparisons in a similar setting. And when I say setting, I'm talking about the size of the company, the geography, patient type, and payers. They all have an impact on what level of pat of professional productivity and what outcome you can get in that area. So what are the main drivers of driving EBITDA up? The opportunities for significant improvement in EPIDA are charge capture which we've discussed professional productivity which we are going to discuss today patient duration of care visits per new patient which we're going to discuss in the next episode and then finally referral generation.
Now those first three areas of improvement that I mentioned those are perform changes. Once you make those changes, those changes stay with you from the day you make those changes moving forward. Obviously, unless you lapse back, referral generation is a change over time, improving numbers of new patients month over week over week, month over month. So when we talk about professional staff productivity levels, this is a real difficult change for many practice owners to make. And why is that? Because there is this misnomer out there and I hear it all the time that high productivity, high production from professionals equals bad care and low productivity, low levels of production from professionals equals good care.
Neither is a fact. The proof, the proof that we have on which level of care is most effective. The proof is in the perceived and the actual measured outcomes of the patient as well as their view on the service that was provided. We are service providers. We are in the customer service business. That's the only way we get full patient engagement. So what are some of the keys to high performing productivity levels? I think first and foremost it's discussing this misnomer that just because we have high levels of productivity and I'm not talking about outside of a range that you can't give quality care to every single patient but we should be right at that okay we have to displace that misnomer with our focus is going to be on patient outcomes patient perceived measured outcomes and how they perceive our service.
So the first step in this is we have to attain buyin from our staff on the levels of productivity that we're going to target for our company. Well, there are many factors to consider in establishing those targets. First, we have to look at the payers. A company that has 80% Medicare or a company that has 10% Medicare are going to have very different criteria as it relates to how productive they can be. Patient type also drives productivity either higher or potentially lower. Certainly with a young population with our pediatric patients, tougher to have higher levels of productivity than with, you know, weekend athlete ankle sprains.
Next is space considerations. Space is absolutely critical and the way in which your space is cons and configured is really critical as it relates to the ability for your staff to drive high levels of productivity. Support staff. You may be or you may not be a believer in support staff including techs aids supporting your professional staff. Look, generally we see across the industry somewhere productivity wise about 10 to 12 patients per day. That's somewhere around 55 to 50 to 60 visits a month a week. I'm sorry.
50 to 60 visits a week. But that can range that can range. There are some markets where we see that slightly higher. Some markets where we see that slightly lower. And we don't want to just pull a number and start there and begin working from there. We really want to again identify all of those different factors and where are we at the maximum level of performance. Now what's the next step? Well, as in all cases, we need to measure and monitor and continue to discuss strategies in order to improve our levels of performance.
And tools to do this are absolutely essential. Your therapists, your professionals need tools to be able to see, again, measure and monitor their performance. And then ongoing training and feedback is crucial as it relates to this. Many therapists have not been trained how to be productive. We as owners, we can be very productive. I will tell you in many practices that we examine. The owner is the most productive therapist in the practice. That doesn't have to be that way. Your staff is quite capable of carrying out the same level of productivity that you do.
I think it's also important that we look at weekly our actual productivity versus our target. When you look at this weekly, thinking back to what I did last week as a therapist in terms of productivity, it's very easy to remember where we may have slipped and where we could improve our performance. You know when we look at improvement opportunities these changes are dramatic. Okay these profform changes as I said charge capture now professional productivity these are dramatic changes and professional productivity is at the top of that list.
Remember, your professional staff is your highest cost in your business, and it rightly should be. But the level of productivity within that will either keep all of your cash up in salaries or it's going to drive it to the bottom line to improve your EBITDA and your cash flow. Therapists generally as we look at what they should be able to generate generally they should be able to generate about three times their cost. So if the cost is $80,000 they should be able to generate about $240,000.
The cost is $100,000 they should be able to generate $300,000. And these are full-time treating therapists, not managers or area managers. Full-time treating therapists. Where these changes really become dramatic is when we can start combining these changes. So if we take changes that you've made in your charge capture, we then combine and add them to the productivity enhancement that you may now have made. All of this flows to your bottom line. None of what I just described requires any additional cost. And so by combining these strategies, you can increase your IBATA by up to 50% or more and improving your value by 100% or more, which is doubling plus your value.
You know these strategies these strategies are extremely dynamic. These strategies will work for your company. If you would like to talk to me about how you could drive your EBID in order to maintain and possibly even improve the value of what many of your peers sold their companies for in 21 and 22. Click below. Let's talk. Thanks. I look forward to talking to you.
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