Revisiting an Acquirer's Perspective on How Innovation Can Increase Your Company's Market Value
Rob Pace, COO of Physical Rehabilitation Network (PRN), joins Paul to discuss why growth matters to acquirers and how productivity, staff retention, and AI can raise the value of a PT practice.
Full transcript
Generated from the episode audio and lightly edited for readability.
Good afternoon and welcome to another episode of Paul Martin's Crucial Conversations. Today we are continuing in our new series on innovation in the physical therapy industry and how innovation can help to solve some of the biggest challenges in physical therapy and most importantly how innovation can actually boost the performance and the value of your physical therapy business. So, welcome to all of you today. And today, real excited to have with us Rob Pace from Physical Rehabilitation Network, better known as PRN. Rob, welcome. Thanks, Paul. Happy to be here.
So, let me give you just quick background on PRN as well as Rob. PRN, private equity-backed rehabilitation company. They have their corporate office now based in Frisco, Texas, but it's a nationwide company. And PRN currently has 220 clinics. I feel like I was talking to AJ just a year or so ago and you hadn't even cracked that 200 mark. So guy's doing a great job. As far as Rob is a physical therapist and he is currently the chief operating officer at PRN. And in our pre-call, Rob and I can actually share some battle stories as Rob also played football where he went to PT school, Ithaca College, which was where I played my final football game in a national semifinal brutal loss to the Ithaca Bombers.
Although Rob was not on that team, he's a little younger than I am. Enough of the glory college days, Rob. Let's jump right in. Absolutely. All right. So, Rob, how important do you see growth, both internal as well as external growth for the success of an independent outpatient physical therapy business that's wondering to wanting to enter this current M&A market? Yeah, I mean, I think it's I mean, the easy answer is it's vital to be just blunt. You know, I think if you look at the conditions that we're all facing, whether you're a 220 office location like ourselves or a thousand office location like some of my my cohorts in the in the larger equity game, or even an individual that just a single office like the constant progression is what's going to ultimately drive how anyone sees the value of the practice.
You know the reality is if it is a growing practice whether it's internal within a four-wall approach where they are adding service lines adding visits taking local market share or expanding you know externally into multiple locations and things along those lines that brings value to us as a larger provider. And it also I think it brings value quite honestly to the individual that's built the practice that's going to be worth more to us to view that as something we'd want to add into the portfolio because it's definitely a creative helps our leverage to be transparent because it's growing and brings new ideas and a positive market share us in some new areas.
So absolutely I think a growing clinic or a growing series of clinics or something that would be you know anytime we look at deploying capital or looking at investing in into a private practice if it's not growing it really kind of falls off a table and why would we really want to you know spend the time to do this? Yeah, I've always wanted to ask this question, Rob. So, you got two practices. I'll make it up. They both have six clinics. They both have the same revenue in the same EPIDA, but one clinic has been sitting with six clinics for the last five years for one business.
The other business has just added their sixth. They got their seventh and eighth planned. And it's a draft board. I know this when you guys are doing these acquisitions, you got a draft board. Which of those two companies is going to move to the top of the draft board? The the one that has a pipeline of growth, I mean, is always going to be one that's more valuable to us. And the reason is pretty simple, right? We're we're hopefully going to come up to a really good relationship, arrive at a at a number or multiple depending on how we do the valuation.
But then ultimately, you know, I myself have to look at the capital I'm deploying to purchase this practice. And so if there is a pipeline of growth, we may absolutely factor that into you know the agreed upon price if you will but it's also going to allow me to delever over time and that allows me to have more capital deploy later on whether it's within that six soon to be seven eight practice. How do we get to 9 10 and 11? That's a much more enjoyable discussion for both parties to have over time versus just kind of staying on the proverbial treadmill running in place.
You know, that's not something that's exciting to anybody. Yeah. You know, you liken it to, you know, the Philadelphia Eagles losing I think it was the last five out of six games playing against the Tampa Bay Buccaneers who I think won their last four out of five or, you know, that they're on a winning track. So, just like we said, one company, you're going with the one that's growing. So based on the strategies that are out there, you know, improving productivity, staff retention, the potential use of AI, which is all the innovative things that are going on, how do you use these things to address some of the major challenges that we face in the rehabilitation industry today?
Yeah, it's you know, I've been doing this for a while. You know I won't say how long but you know the profession has changed a lot and I think you know to answer those questions I think you can't overlook the fact that you know PT continues to be great medicine like it is great valuebased medicine it is it brings a tremendous amount of value in the health care system it's it can be deployed easily and it's you know quite honestly it is good healthc care dollar spent what's great as being a PT right now you know for over 20 some odd years at At this point, the reality is that other people and other insurance companies, while they may not value us on a per visit basis, they people are definitely valuing the services.
And so this time in our profession, there is more demand than ever before with less therapists than we've ever had if you look at the amount of new patients we actually have to see. So if you do the ratio, if you will. So looking at AI to kind of solve some of these challenges or really put our businesses and our clinics and most importantly our therapists and patients in the right position for success. There are definitely AI strategies to help with all of that. You know, one of the things that we really spend a lot of time looking at is how do we make sure the right level of patient is getting the right level of care and within and in a you know utilizing strategic scheduling looking at where they are in their acuity process and then partnering that with you know certain skill sets within individual clinics whether that be a PT from a lensure standpoint or a specialty standpoint or is that patient can still get the outcome we're looking for by utilizing administrative or excuse me not administrative assistant but a physician excuse me a PT assistant or other uses of kind of a topoflic license approach so that patient is still going from dysfunction to function but we're deploying our therapist in such a way that still allow us to touch the most number of patients while not necessarily putting too much stress on the system or kind of leaving it to just an individual thinking of how they want to manage the schedule at the front desk.
Yeah. And when I the way you the way you describe that is so different from when you hear some unfortunately there's the mark that big companies have that there's no measuring and monitoring clinical performance or clinical outcomes. It's all based on numbers. But what I heard you say is same clinical outcome with a more efficient way of getting the patient to the same outcome, not dimminimizing clinical care. 100%. The the goal of taking a patient from dysfunction to function never will change. And if we do, we've lost our way.
Yeah. But the reality is because of all the other things that you know I'm sure we'll talk about or maybe you've talked on other podcasts of just declining reimbursement, the cost of delivery going up, the our therapists now are more expensive than ever before. There are absolutely generational changes in expectation. Those are all challenges we all face as managers, right? And we can say woe is me all we want, but they're not going to change at least in the near term. But looking at how we can best deploy the therapist to the right patient, I think helps us a number of ways.
It opens up doors for value based care so we can actually be creative with payers to make sure that we're getting reimbursed appropriately but also still meeting their needs. I also think this factors into staff retention. You know, when you mentioned, you know, large companies focused on numbers, if you will, and look, all of us are focused on numbers, right? Metrics are not bad. We use them every single day. The staff clinician uses a gonometer. They use metrics. But the reality is I think our therapists feel this immense pressure to service all these patients and we're not giving them tools so they ultimately can say this patient really needs my services because my skill set only allows me to do A, B, and C.
This patient may have progressed past that point where they only need A and B and I can very effectively utilize my license in a certain way whether that be with a in a licensed assistant or depending upon your state and practice act you may use AIDS or text depending upon you know your business model that patient is still getting a quality experience and still moving towards the outcomes that we're looking for. Yeah. You know, I most of the technicians that you know, physical therapy aids, many companies call them different things, obviously a large step down from a PT assistant, but as you said, in states that will allow I can remember back we had a tech, his name was Brian.
I won't tell you his last name because he still works for one of these large companies. And I had him, you know, he was an expert at teaching knee exercises. I mean, an expert. He could teach knee exercises. So, you know, while I was over with my hands on a patient, I had him teaching the exercises. I came over. We talked through the rest of the program. The next time that patient came back, the patient asked if they could see Brian as opposed to Paul. Yeah.
You know, it's interesting. We we obviously there's a you know there's a lot of views on this to your point and I know it's a very at times can be a very sensitive subject. I'm sure at some point we could probably have a whole different conversation just on that topic alone. But what we've seen from a retention standpoint is having a very great conversation with our clinicians or top of licenses and I kind of call it the 3Ds. Like you are a doctor of physical therapy.
You should be focused on the 3Ds. You should be able to diagnose better than anyone when it comes to muscularkeeletal dysfunction. You should be able to design a treatment plan that ultimately moves that patient from dysfunction to function. And then you should be able to delegate what you feel is appropriate to allow you to go back to step one and continue to diagnose others. And that's just really changed the paradigm. And I think AI can help with a lot of those pieces. Yeah, Rob, that's innovation.
I mean that is innovation because you know utilizing a slightly different care model to get us to the results that we need. You know we have Medicare cuts. We have a lot of you know challenges out there. I heard you say valuebased care. I still believe that physical therapy is without question the greatest value in health care barring none. Healthcare services barring none. So you know, it's all music to my ears with again this innovative care model to get to the same outcome. What are some additional areas of the rehab business where some of these strategies that you've evoked and how do you think it will change to meet the needs in the future that we have as rehabilitation businesses?
Yeah, I mean on top of the clinical pieces that we obviously spent a fair amount of time on, we also know that the reimbursement and the rev cycle component of this business is unbelievably complicated. And it's also very timeconuming. I mean you look at I would say you know you were ask you were talking earlier about a six or seven you know location practice but t take a solid single location for that matter right you know four clinicians in four walls they're generating roughly a million dollars of revenue a year and they're collecting it $95 at a time.
Yeah, those are a lot of transactions and healthcare historically has been really good at throwing people at a problem or a process if you will. And so if we can delever the need on people right and go to automation go to you know claim scrubbing finding making sure the modifiers those thing those lines that you know we if we're able to find even a dollar of that 95 that now can be pulled out of the system and then put back to the bottom line that would increase that single location five six 7% in terms of bottom line you know revenue or excuse me profit generation and I don't think these are necessarily processes that are absolutely so complex that we can't have tools that do that.
And that's one of the things that we're investing in heavily. Obviously, in a business of our size, you take that dollar per claim, you know, we see, you know, hundreds of thousands of visits a year. Makes a big difference. But even in a small practice, I think there are there are dollars to be had by thinking, you know, how we can move away from just putting another person or another half FTE here or have somebody, you know, in a back room making sure that, you know, all the PTA modifiers are on for the Medicare patient, things along those lines.
There's a lot that can happen, I think, that can help us outside of just the clinical realm itself. So if we start with, you know, some technology, maybe AI to improve our as you said, revenue revenue management cycle, right? And we're able to look at some new care models that allows our physical therapist to get the same outcomes because of that valuebased care that we want someday. Although may be able to get there with a slightly different care model. Sounds like we're hitting a bunch of singles.
You know to get us around the base pads. What kind of an impact by combining these things do you think it could make? And and I like your four physical therapists four walls analogy. What kind of an impact do you think it can make to the bottom line of a physical therapy company like the one we just described? Well, I think I mean it could be huge. I mean this I mean go back to the math equation. It's just you know again I'm using huge generalities and may not apply to everyone, right?
Some some places are better than others, but I we know that wages are increasing faster than we ever have. The the general delivery model and even payment model for therapists as an employee has been relatively the same for 30 plus years. And so I think if we can look at more revenue generated with less people that gives more dollars for that fourperson practice to invest back into their team. Sure. End of the day. And then retention is higher, patient satisfaction is higher, market share continues to remain.
There's nothing worse. We've all been there. We have a great number two therapist who can go find a couple grand somewhere else. Putting all these pieces together allow us to keep that therapist engaged moving forward. Maybe they're the one that gets you to open from clinic one to clinic two because they've learned everything you can teach them and now they're a great partner for you to go and expand to that external growth we talked about earlier. Sure. So you know there's that the book crossing the chasm and the crossing the chasm adoption curve and so it sounds like you got some early adopters.
Do you expect that your strategies and your technology and the things that you've put out there will follow the crossing the cab chasm adoption curve? Well, I hope you know what look I don't have it all figured out and there's been plenty of things that we have come up with when we've really put pen to paper and started building out what it looks like and how we can implement doesn't cross. Yeah, we've, you know, and I think that's one big lesson that sometimes people look at.
There's always going to be shiny objects that are cool. There will always be people, and I'm sure this happens in all sides of practices. You get hit on a lot of different angles of look at this or here's this company that can take this off my plate, if you will. And to me, those are the shiny objects. I we tend to look at what are the big root cause problems that we can essentially use technology get an early adoption sort of concept pilot appropriately design that we can scale right so for our business doing it in one two or three clinics that's not scalable to everything that we put in place we have to think can I flip this for 220 and someday in the future 300 clinics right that's helped us kind of cross that curve because we're solving fundamental problems, not focusing on shiny objects that are not scalable.
And then when we test, retest and look at outcomes, it allows us to then take those individuals that are maybe skeptical, which PTs by nature are not the most adventurous personalities. [snorts] it allows you said that I think look, you know, it just is what it is, right? We're caregivers by nature, right? And and that's okay. I mean, I think that's what makes us so special. Quite honestly. But it has allowed us, I think, to kind of, you know, I hate to use the word convince, but educate individuals on opportunity.
The other thing that's helped our business and our company with that very big problem is we have started stuff realized it doesn't meet any of that criteria and rather than continue to be stubborn about con trying to either throw money at it or force a process that's not really scalable or not really solving the problem we're looking for. We've also said you know what we've gotten to a point we're going to shove this and move on to something else. And I think that's helped our adoption within our own organization because it shows that we're not willing to admit it may have been a great idea when we came up with it.
When we started putting into practice, it's not really something that meets the needs of our business. We're a partnership company. Most of our clinics have a minority partner. Something we're really proud of. We have we owe it to them to make sure that whatever we're pushing out is something that they actually see value in. Yeah. Rob, when you push this out and you know you guys do have the great benefit and are blessed with many clinics so you can see how those early adopters respond and react.
But when you go out to those couple clinics and to those couple PTs, what's the time frame that you see from, okay, we're going to try some of these, you know, new strategies and we're going to work to be more productive, etc. What do you find is it a week? Is it a month? Is it three months? How long does it take for them to catch on and say, "You know what? I'm getting the same outcomes and I'm feeling really good about what I'm able to accomplish." We we tend to kind of bucket things into kind of a 90-day process early on.
And you know, some people would say that's too long, some people be too short. But I, you know, I go back to, you know, like any anytime you're doing a resolution or anything else, you know, if you can make a change for three months, you can usually make a change for, you know, the foreseeable future, if you will. It also gives us the ability to find and refine, right? So, it may be working, but we're also taking a lot of learnings. And so if on day 45 or 60 we may feel really good about where we're going but then we tend to sit down and we do have a very groundup approach where it's like hey what do you feel you know in the clinic is it working?
Is it not? What would you change? What do you like? What you don't like? Because we don't want to be a scenario when you force technology or innovation on anybody. Nobody likes it. Yeah. But when they feel like they're part of the process. And so for us, usually it's a 90-dayish, maybe it stretches to buck 20 at that point. Then we do a we have a very honest sit down with not just the stakeholders that are implementing, but the ones that actually created it. If we're utilizing a third party, we involve them as well.
And then to us, then we go to what is the what is the scaling at that point. And then the best part for our business is we use those early adopters as advocates later on. Sure. Sure. And 90 to 120 days seems to be, you know, proof of design and strategy and implementation versus, hey, last week it was pretty good. Let's, you know, so yeah, no, I don't think that's too long. I really don't, you know, as we're as we're talking through this and I know I had a lot of conversations with AJ about AI and because he's a progressive guy and Rob, you are too.
But you know, I liken it to, you know, Tesla has the self-driving, right? Self-driving to me that's like a PT saying, "I'm going to leave it up to somebody else to treat this patient. They can do it or some, you know, an AI machine can do it." [snorts] but you know, these new cars out on the road now from Rivian, they're the trucks. They have driver assist. And with driver assist, it just keeps you in your lane and it slows you down if you get six car links from the car in front of you.
But you cannot take your hand off that wheel and you got to stay alert. And I think to me what we're talking about here like you said revenue cycle management maybe some notew writing support you know getting the notes into certain you know with within our EMRs is a cyst not taking over and I think that's I think for physical therapists out there who have spent a lot of money going to physical therapy school I think that's kind of a an exhale for them to know that they will not be taken over by robots someday.
No, I think I mean it's interesting you mentioned that we are private equity backed and I've been you know there's a lot of folks that have opinions on it. I'll be honest, it's been a wonderful thing. I think it's a good thing for the profession, right? If you look at what it allows us to do, right? This whole conversation is driven because we have a capital partner that is willing to invest in us and allow us to try and sometimes we succeed and sometimes admittedly we fail.
But I'll tell you know, when we go through that process, it's just interesting. People bring this up. Can you do these other things? Can you diminish the role of the therapist? And the argument there is no physical therapy has a very important word, and that is physical in it. And and to be, you know, the laying of hands, the connection with the patients, you know, to me, it's vital to what we do. It is a consumer-based healthcare, right, which is, you know, all the rage right now.
And I will tell you that, you know, if we can find the tools to help our therapists be more successful, then the job satisfaction goes up. The outcomes actually conversely also get better. And this concept of burnout, which every one of I'm sure the people you talk to, you know, we hear about it all the time. I've never been burned out in this profession. I missed the days of treating patients all day long. I never felt it to be a burden. Obviously some people do, but if we can let them know that they are winning that battle every day, then I think we really combat a lot of this stuff.
Yeah. But again, to your point, it's an assist. Yeah. No, it's still local people treating other local people in these markets. You know, yes, we call it mom and pop, but you know, a collection of many mom and pops backed by private equity can be very powerful on the things that we're trying to achieve as physical therapists. And so, makes a lot of sense. Makes a lot of sense. Well, Rob, you've made a huge mistake by coming on and doing some such a phenomenal job today.
You've been a wealth of knowledge and, you know, short of being able to talk Gettysburg Ithaca football, watch out because we're going to ask you to come on again and talk about some other topics as well. I want to thank you for being with us today. Absolutely, Paul. Truly enjoyed it and anytime I could be a resource, please do not hesitate to reach out. You got it. And for all of you out there who listen today, if you have any questions for Rob or myself, just click below. Let's talk. Thanks for listening in today and have a great day.
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