Why Busy Clinics Still Struggle with Profitability
One owner came to us with a question: why isn't my clinic profitable when we're so busy? In this episode, Paul Martin and Josh Meyers share the real client story, and the surprising place where profitability was hiding.
Full transcript
Generated from the episode audio and lightly edited for readability.
Good morning and welcome to another episode of Paul Martin's Crucial Conversations. I'm Paul Martin, founder and president of Martin Healthcare Advisors, and today we're going to be talking to one of our very own Josh Meyers. Welcome, Josh. Thanks. Good to be here. So Josh is currently our director of consulting services as well as an M&A, a emerger and acquisition advisor. And Josh has been on our show, so is he's a pro. He was he was on this show before he came and worked with Martin Healthcare Advisors and has always done a great job for us.
And what we want to do today is talk to Josh a little bit about a client who came to us with a profitability problem. So Josh, if you're ready, let's jump in. Yeah, let's do it. All right. All right. So talk to us about this business owner who had come to us not to sell the business. She really did or he did he really did not have any interest in selling the business but just wanted to figure out why the business was not as profitable as he believed it should have been.
What was his situation when you first talked to him? Yeah, it was it was interesting. So, it's a client that had seven clinics in the Midwest probably, you know, saw 1500 visits a week, you know, 70 80,000 visits per year, right? Over, you know, a good span of a geography. And so this client was busy. It it was a typical client owner that loved to treat patients all day long. So he was working 40 hours a week treating patients and then he'd work another 20 hours a week doing payroll and accounting and everything on the weekends behind the scenes.
But just a practitioner at heart, right? And lots of volume of patients and at the end of the day he wasn't making any money, right? So they called us and said, "Hey, like you got to help us figure this out. We're busy. We're doing great things with our patients, but we're not seeing the return, you know, at the end of the day." Yeah. And again, he was not looking to exit. He wanted to grow. What did the profit potential assessment, this is one of our newer assessments that we're doing now.
What did that help him to see that he couldn't see on his own? Yeah. So when we do a profit potential assessment, we look at various facets of the business, right? You can't just look at one thing and say, "Let's go after that." You have to say, "Let's let's look at everything and see, you know, what could improve and then what improvements take the least amount of change for the biggest result, right?" And we say, "Let's go after those." and so that's what we did with him and his practice.
We just objectively looked at his practice as if we had never, you know, seen it before and we said, "Here, here's how you compare to your peers in this category. Here's how you compare to your peers in this category and on down the line." And it stuck out like a sore thumb with, you know, some of the things that we needed to work on with him to help him be more profitable. So you were preparing him to top performers or at least moderately good performers with his metrics compared to their metrics.
Yep. And peers in his region of his state, peers in his state. Right. So we see enough of that those client trends where we can we can give that level of clarity. Got it. Got it. Got it. Okay. So you requested the numbers. We got the information. Where was this profit hiding? What was, you know, the some of the key things that were dragging this business down? Yeah, it for him it was kind of surprising. It was pretty straightforward and maybe he's he was even surprised he didn't notice it himself, but his problem was he just wasn't getting paid well for what he did with clients, right?
So, when we looked at his visit volume, it was great compared to his peers. When we looked at how full his schedules were, they were great compared to his peers, but he was getting many dollars less per visit, you know, revenue per visit compared to his peers, right? And and so when we dove into that, we said, okay, it's, you know, somewhere along the revenue cycle rather, whether it's the patients, what they do with their patient or the providers, what they do with their patients, how they bill for their patients, how the billing team manages those claims, if they're working denials, if there's back-end AR issues.
We looked at all of that and really we found that the problem in this case was that the therapists were busy all day long but they weren't really billing optimally for what they were doing with their patients. You know, you've used a word in the past operational clutter, you know, and it and it sounds a little bit about what you're just describing. What are what are some of the things that cause this to happen in a clinic that just obviously kind of kills the profitability and without realizing it?
They don't know they're doing it. Everything looks like it's going along just fine, but it's killing their profitability. Talk to me a little bit about that operational clutter. Yeah, I think I think a lot of practice owners are therapists at heart. They love to treat patients and so that's what they went to school for. That's what they want to spend their time doing and they feel that if they just do more of that they'll have a successful healthy practice, right? I've had many of them tell me, I don't look at my numbers.
I'm not a numbers guy. And and honestly, operational clutter occurs because you're not looking at your numbers and running your practice objectively. So in this case with this client, some of their operational clutter was they never looked at billing trends, right? They never measured anything related to billing or units or even the revenue cycle that they were working on. The front desk again their mentality was we see a lot of patients, we see a lot of patients. So the front desk was scheduling patients in ways that prohibited the therapist from billing optimally for what they did.
So everybody was thinking that they were doing the best thing they could for the practice by getting a lot of patients in, right? But nobody was paying attention to what was happening after those patients were seen and how the billing was taking place. So, we had to definitely, you know, reset some expectations, provide some accountability, provide some visibility, provide some, you know, really quick weekly feedback on how did we do last week to make sure that we could, you know, correct the problem. But, we had to kind of turn their focus from lots of patients to let's make sure you're billing well for what you do with your lots of patients.
Yeah. And for those out there listening right now, you know, we think that this is far and few between that we'll find practices, businesses that have this operational clutter and are really, you know, not driving the profitability that they should be driving. It's very common. Would you agree with that, Josh? I would. There there's two types of practice owners. There's those that don't look at their numbers and so they have operational clutter because they don't ever look at, you know, they don't check anything or measure anything or give feedback on anything.
And then there's the other practice owners that look at too many numbers. And they don't they get spread too thin looking at all their numbers. They can't focus on the one or two big things that they need to do to run their practice well. So that's, you know, we see both ends of it, but we got to kind of land in the middle where it's a healthy balance of measuring and running your practice by the numbers, but focusing on just those one or two key things that really make a big difference.
That's a good point, Josh. You were really good before you came to Martin Healthcare Advisors, but I'm telling you, you've taken it to a whole new level now. All right, so charge capture, it's something that we talk about a lot. Tell us how charge capture kind of played into this story. Yeah, so I would say again, the therapists were treating a ton of volume. They were seeing a lot of patients. They just weren't billing well for what they did. So, we had to dive in and say, are they educated, right?
Do they know what they need to do when it comes to billing? Or are there, you know, mental emotional barriers? Are they fearful of billing? Right? There's a there's a lot of language and dialogue in the PT world now that makes therapists afraid to bill. So, by human nature, when there's fear or there's uncertainty or unc, you know, lack of clarity, people default to inaction. And that's so much more true when it comes to therapists and billing, right? If if they're even a little bit hesitant or a little bit unclear of how the billing rules work or what each CPT code means, they default to I'm just going to underbuilt.
I'm just going to play it safe, right? And so there's been a lot of, you know, fear, I think, built up in the in the world that way that we've got to overcome. So that's you can ask more questions about that, but I think in a nutshell that's the hurdle we had to overcome with respect to charge capture is teaching the staff the rules about billing and coding and what CPT codes are but then overcoming that fear and that lack of clarity so they felt comfortable moving forward.
Yeah, it's almost, you know, if left you know, not being objectively viewed on a on a normal on a routine basis. You know, if you're not holding those objectives as an actual target and if you're not monitoring that ongoing, the easiest path is to, as you just said, just build the lesser paying code because it's safer, because it just it's easier. You don't have to clarify as much in your notes. And so I think that path is what you probably find pretty common when you're working with a business with multiple therapists.
Yep. And and we see new grads, right? PTS have been out of school for one to three years say, "I was taught some of this stuff in school. I never really felt confident to apply it or I never really applied it in my clinicals, so I never applied it." Right? We see a lot of the, you know, five to 10 year out therapists say, "You know what? I've talked to my peers and my buddy who works across town does this, but our practice has never really done it, so I'm just unsure, so I'm not going to do it.
And then we talked to a lot of, you know, veterans of the industry that have been PTS for 30 years and used to turn in their charges on, you know, yellow carbon copy paper 30 years ago. Just said, "Hey, I've been doing it the same way for 30 years. I guess it's worked for me. I never thought about changing." Right? So, we all of those people come and say, "Hey, thanks for teaching us something new. Thanks for clarifying because I've always wondered about it, but I've never felt confident to actually make the leap to be a little more accurate, a little more timely with my coding.
So, that's the feedback we get from a lot of the people that we work with. And you would think with a lot of companies using travelers that travelers tend to, you know, at some level take the easier road if they are not measured and monitored objectively. So, yeah, they blend in. It's easy to blend in. And if you blend in with a bad culture, that's not good, right? Absolutely. Absolutely. So, I know you did some work with his leadership team. What was their reaction when they saw the results of this profit potential assessment come back?
It's funny. So, I the what I'll share for his team's reaction is a similar reaction that I get from other clients we work with as well. So the owners of the company, you know, kind of just pulled out their calculator real quick and said, "Hey, I'm doing some math here and oh my goodness, I've been leaving this much money on the table for years and years and years and they start doing, you know, 40 years of math and saying, "Oh, I've messed up for, you know, forever." and then I tell them the best time to plant a tree is, you know, if not 20 years ago, then today.
Like, let's fix the, you know, the problem today. But the leaders, a lot of the, you know, the clinic managers in this client's case, you know, he had seven clinics. Three or four of the clinic managers were more seasoned leaders. A couple of the clinic managers were newer staff that had kind of been promoted into that position. Some of them, again, I mentioned had heard about charge capture, but were never confident enough to apply it. Some of them had kind of, you know, raised this as like, hey, this is a concern.
This is something we can do to improve our practice. But the client wasn't confident about the topic. So, he's like, we don't know any better. Let's just default to being safe. Right? So the feedback I get was, "I've always heard about this stuff, but I never took action, right?" And and so thanks for clarifying it for me. And that's what we make sure we do when we teach, you know, teams and leadership teams and billing teams and front desk teams to improve charge capture is we give them clarity and we give them confidence and turn them loose, right?
You know, PTs by nature want to do the right thing, you know, from what I've experienced. And so if you give them the tools, they'll be fine with it. You know, years ago, we had a consultant that did a lot of great work for us named Dennis Bush and he used to describe similar things to this as it's not a light switch, you know, it's that dimmer getting dim back on and on and on and on. So as you started making some changes and as we go to the light switch versus the dimmer, what were some of the things that shifted first because we're, you know, we're working with people, we're not working with robots.
Was it the culture? Was it systems? Was it schedule? What started making these changes? Yeah, I think, excuse me, the biggest factor with any change management, anything you're trying to change is you've got to change individual behavior because individual behavior is, you know, the sum of that is what the culture is of the company. And so when we do a charge capture initiative with a company, we need to make sure that we teach the staff the right way to code and bill and account for their time with their patients, but then we need to give them quick regular feedback to tell them if they're getting it done or not, right?
And so that system of quick regular feedback is usually absent in a lot of clients in all aspects of their business. And so they quickly realize like, hey, if we want to work on improving this thing, we might want to talk about it weekly. We might want to give our team feedback weekly on how they're performing and then they realized they can apply that to other areas of their practice as well. So it kind of empowered the client and the leadership team of that client to say hey if we communicate a little better with our team and we're a little more clear with our team of what we expect and you know why we're why we are who we are and why we do what we do that's going to go a long way.
So I think they quickly learned that some sort of a feedback loop communication cycle you know with to create clarity around their organization goes a long way. And then the other thing that just you know it's a little more applicable to just this practice but this practice owner was kind of feeling the pinch with wages and you know and labor costs and he always thought his therapists were worth more but could never afford to pay him anymore. So he's kind of caught between I want to keep him, but I'm not making enough money to pay him what I want to really pay him.
This freed him up to do that. So it helped with, you know, obviously he felt better because he was now paying his people what he felt they were worth. He was also like a community-minded extrovert, if I could say that. So he wanted to be involved with a lot of other facilities in the community, and so having the extra cash flow allowed him to kind of reach out and support that way as well. So, yeah, short term it helped them financially just be a healthier, stronger company, but it really let the practice owner have some confidence that I can now take care of my people and my community in the ways that I want to.
Absolutely. You know, and you know, as we see these shifts, I've always coined it as we're seeing a shift from a culture of subjectivity to a culture of objectivity, measure and monitor. And once that culture is built in, it becomes part of everything that they do. And then isn't it great? Now the owner gets to take some of that cash flow and use it towards building some additional relationships and doing good things for the community. So yeah, it all ends positively. It does. So how did this particular owner feel when the profitability finally started to show up on his profit and loss statement every month?
Yeah, it it's interesting because I know that happens with our clients and I always kind of wait for it to happen and sometimes they bring it up to me and say, "Hey, the bank account's better this month." Or, you know, sometimes I have to bring it up and say, "Hey, how'd your bank account do?" Because I know the answer. I know that I know that they're performing better operationally and it's going to start showing in their finances. But, the thing that I watch for with practice owners, and this was the case with this guy, too.
When they first call us, right, before they even know who we are and what we do, they say they're just not happy with their practice, right? They're they're maybe thinking, "Oh, maybe I'll start phasing and winding this thing down. It's not really, you know, I'm working too hard for what I'm getting paid." And they're kind of down on their practice a little bit. But once we teach them to gain some control over their operations and their, you know, their metrics and how to run their business well, they get a win, right?
And when they engage their team, they get another win. And when they can pay their people better, they get another win. And you start building up those wins and all of a sudden they're excited about their practice again. And you know, these are practice owners that have owned their practice for, you know, this guy's probably had his practice 35 years, right? And thinking about retirement, but all of a sudden he's kind of newly re-energized because he's winning, he's succeeding, he's running a healthy practice, and he can actually, you know, not have to work 60-hour weeks and maybe work 40hour weeks, right?
Imagine that. Or he can, you know, pay his people what he feels like they're worth and take, you know, and have a, you know, bigger Christmas party at the end of the year and really take care of his people in ways that are important to him. Those wins energized him as an owner and he felt like he had control of his business again. Absolutely. And, you know, without profitability, you can't be built for future growth. And so I would imagine, you know, someone with seven clinics typically had an idea at some point in time.
I wonder if I could ever be a 10 clinic company or a 15 or a 20. And with no profitability, that that's completely off the table. But now that being back on the table, I would imagine that pushed some confidence for him. Yeah, definitely. Yep. So you helped him build a framework around the business that you had said seemed to get out of control for him. You gave him something repeatable that he could continue to do in order to not have you obviously interacting with his leaders etc.
So that he could do this on his own. Why do you find that is so important to kind of build that framework for someone? Because it's the first thing that disappears when you get busy, right? So, you kind of have to have that as a an anchored tenant of your practice of, you know, no matter what, we're going to check our numbers from last week. No matter what, we're going to talk shop. You know, no matter what, we're going to work on our business versus in our business.
And and if you know what, if I have to cancel one patient to free myself for one hour to run my practice this week, it's worth canceling one patient visit or losing one patient visit to do so. Yeah, otherwise you kind of go back to where you started and then you're back in the same position of why you call this in the first place is like, hey, I don't have a handle on my business. You know, if you can keep that regular system and cadence of measure, monitor, give feedback, and encourage and grow, you know, that goes a long way to sustain a business being pretty healthy into the future.
Absolutely. Kids. It's like, you know, you built you built a really good diet for this practice. And you know, any of us that have gone on diets know that then you stray a little bit away, but no. If I get back into that, so you know, when he got back into looking at his reports, obviously objectively providing feedback to his staff, he gets it right back in place again. Yeah. You know, this has been awesome, Josh. And I think that you know, the opportunity for folks out there to gain more control over their people and their business is just something that is, you know, it's almost to some people right now it's almost unthinkable.
There's so many steps to it, but if we can just put it all in one place and start piece by piece by piece, we can gain that full control of a practice. So if there is an owner watching this who wants to grow but is stuck, no profitability, what would you tell them, Josh? After going through this experience, what would you what would you tell them? Yeah, I guess the word of advice would be there's always a path forward, right? I think like I said earlier, a lot of practice owners kind of get stuck in the weeds, kind of get busy treating patients and don't take a step back and look at their practice.
But with an objective look at any practice, there is a path forward, right? There might be three paths forward, but there's at least one path forward. The way you identify that path is you know you know for our clients we do an outside in assessment which is essentially a really good in-depth objective business assessment where we look at all the different financial operational growth components of a practice and kind of you know lay out the different opportunities to improve and grow and like I said earlier you kind of want to pick the ones that require the least amount of change that have the most result that you know shows from that change and you can go after those but until you have someone maybe objectively assess test your practice or your business, you're not really sure where to put your time and attention to make that happen.
Yeah. So, get that assessment, get that objective assessment, measuring your results against your competitor's results, and then how do you close that gap? Yeah. Yeah. Josh, this has been great as always. And for any of you out there that have a question for myself or Josh, click below and let's talk. Thanks for joining me today and we'll see you all. Have a great weekend and we'll see you all next week.
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