As an owner, “you have to DEMAND profit from your business,” according to Eric Miller. He’s right! Being ignorant or naive about your income is just a way to keep your head in the sand and can make it hard to grow, support your team, or support your family. In this episode, Eric Miller, the CFA of Econologics, discusses what PT owners are NOT doing versus what they SHOULD BE doing to get greater profits from their business. These financial practices that most PT owners think are the right practices they should be doing to generate profit is the reason that holds them from growing their business. Find out what these practices are to grow your business by tuning in to this episode today.
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“If The Profit’s Not There You Ain’t Going Anywhere” With Eric Miller Of Econologics
I got everybody’s favorite financial advisor back with me, Eric Miller of Econologics. Eric, it has been a while. Thanks for coming back.
I’m glad to be here.
We went through a run, and it was about this time in 2022 when it felt like I have you had you on every month, but there has been a little hiatus. It is good to have you back. We can talk about money again.
It is a good subject to talk about. In the industry, you are still seeing a lot of owners that are fearful of reimbursements, managing their practice finances, getting squeezed in inflation, hard finding staff, and all those things that are normal problems that you are going to have running a business.
For those who have read the past few episodes, I have been highlighting a couple of owners that I know well, who have fought back against some of their concerns, especially in terms of declining reimbursements, and have dropped some of their lower painter contracts with insurance companies. They can increase their average reimbursement rate. They are turning back their profit margin to a positive thing or even greater positive margin. When I talk about that, you are not in the industry, but do you see that being a mindset issue for many physical therapists or other private practice owners that you deal with?
A profit is a mindset. It is one of those things you can’t expect is going to show up in your bank accounts at the end of the month. You have to demand it. When I say demand it, you have to demand that I am going to make a profit. It may sound kooky, but that is the only way now in a world and in a system that is designed to extract wealth from private practice owners. What is your method of fighting back against that?
The first thing you have to make a decision is, “I need this profit. It is a necessity because I can’t expand. I can’t pay my people well. I can’t make my household solvent. I have money to invest and get out of debt if I don’t have a profit built into my business.” It is far too many owners that get a little reasonable about that. They wait to see if there is going to be anything left over during the month. That is not how profit works.
It is almost like they feel, “If I’m doing good, my intentions are good.” They are not looking specifically at their actions. They are judging themselves by their intentions, thinking that these good intentions should equate to a good life, good profit margin, and happy people all around me without necessarily being intentional, and putting actions and habits into place to generate that profit.
I love how you said that you have to demand it. Much of what PT owners that I have worked with do is what you said, “We do the right things. We take all the payers. We appease all the doctors. We see all the patients and sacrifice our time, efforts, and money, hoping that that translates into a profit for me and my household so that I can pay off my bills.”
I get the struggle. What you said right there, take anyone on, take whatever reimbursement rate they are going to provide me, and take whatever patient that is not going to pay me seems like the right thing to do, but it is not even close.
What are you going to tell an owner that says things like, “You can’t tell me to drop this insurance because that means I’m not going to see this portion of the community and provide services to them? I might piss off some doctors because I don’t take that insurance plan anymore.” What do you say to that?
I would say to that person, “How long do you think that you are going to be in business to be able to see patients if you continue to go down this road where your margins ever slowly begin to diminish down to the point where you are going to be insolvent or you are going to be working on a day-to-day basis? At that point, you are going to be frustrated, overwhelmed, and burned out. You are not going to be nice to your staff, patients, and spouse.” It is going to end with you throwing in the towel and saying, “Forget this. This isn’t worth it anymore.” There may be a number of years before that happens, but it is going to happen.
What did all of that altruism do for you?
If you look at the derivation of the word profit, it means to expand. Expansion cannot occur if you don’t have a profit. It is not expansion in your business. It is the expansion of your household and life. I would say to those owners, “This is going to sound terrible. You are being selfish by doing that.” You are being selfish by accepting lower reimbursement rates and all those things that you mentioned. At some point in time, that is going to cause contraction when you shrink. You are not going to see as many patients and employ as many people. What good is that?Expansion in your business, household, and life cannot occur if you don't have a profit. Click To Tweet
With inflation coming up, expenses are getting greater. That is what is happening. These lower payers maybe weren’t so much of an issue several years ago, but they are still paying $60 a visit now, a few decades later, not accounting for inflation. It is putting on the squeeze. I had Trace Kennemore out of Tennessee, and he is busy. If someone is going to cancel now, they are not going to be able to reschedule within the week.
What he noticed is that getting rid of his lower payer opens up his schedule. Some of these higher payers can get more care. He can provide more frequent care, which equates to better care in the short term for the benefit of the patients. These patients are losing out on good care in his facility, and he noticed that as much, which finally helped him make the decision to drop some of these insurances. Those patients could get better care within his facility.
Furthermore, he admitted, “Financially, I’m doing okay. Dropping the insurance might not make a huge difference. It is not going to negatively affect me. It is going to positively affect me. What it will do for me positively is to be able to give the team bonuses that I couldn’t do before. It could allow me to expand and bring on a couple of other providers at the higher wages that are expected nowadays. I can hire more support staff to help my teams.” He can invest back into the facility to provide a greater experience for his team. If he can improve the quality of care that he is providing, plus provide a greater environment for his team, it is worth it.
Who is the more courageous person, the person that is being altruistic and keeping these contracts that aren’t paying them what they are worth, or the person that makes a decision that I’m not going to get what on anymore? I know the value that we bring to the community. I can’t do this anymore.” I’m going to say that the latter person is more courageous because they do put something on the line. We have talked about this. In every instance where you have made a decision like that, we felt like you kept your integrity in. It always seems to work out for the better.
You mentioned that before we started. Did you ever have that one person you dragged your feet on getting rid of? You knew they were in poison. You knew you needed to get rid of them several months ago. When you finally do it, your numbers and production of the business improve. I have noticed that multiple times. The C player and B-minus player produce fairly well. I knew they were a drag on the culture. They weren’t a personality that fits. They weren’t value-aligned. Once I got rid of them, things were better, even though I had so much fear prior to that.
Almost 100% of the time, that worked. Why wouldn’t you apply that same standard to the vendors and insurance companies that you are working with? They are doing it in a more sleight-of-hand way because they feel like they can. We are only going to pay you this much because we can, and you are going to take it. That is a bad relationship right there. People wouldn’t tolerate that in their interpersonal relationships. Why would you tolerate that with your business relationships? They have to look at that and say, “In what world would I tolerate someone doing that to me?”
Trace shared it in his episode. UnitedHealthcare posted some $20 billion profit in 2022. They haven’t found it within them to increase the PT reimbursement rate for several years. They are still offering the same contracted rate in Arizona that I accepted back in 2002, now in 2023, at $60 to $65 a visit. It hasn’t changed. They are generating tens of billions in profit each year.
You could rent a two-bedroom apartment for $700 or $800. You could get a car for under $20,000 back in 2002.
It is not going to happen anymore. That was one thing that he mentioned that should be upsetting. It should make us emotional as owners, but somehow, we like to take the compassionate route and think, “It is not about the money. There are greater things in life.” Maybe but you also might not be cut out for ownership.
This is where you have to delineate what your roles are because there is a part of you that has to be in that practitioner caregiver role. When you are talking to your providers, you want them to have that mindset of care that bleeds through in what they are doing with the patients. You also have to have that CFO mindset, which is more numbers oriented. It is making fast decisions, demanding exchange for the services delivered and making sure that the business is profitable, has reserves, and can operate.You have to have a CFO mindset that is more numbers oriented. It's making fast decisions, demanding exchange for the services delivered, and ensuring that the business is profitable, has cash reserves, and can operate. Click To Tweet
That is two different mindsets. That is why people hate corporate because they think, “They are cold-blooded. They will fire ten people at the drop of a hat without thinking about those people.” Yes, they will. There is plenty of we can complain about with them, but there are some things they do that allow them to stay solvent. They do make corrections and changes when they have to. That does allow them to maintain a level of profitability and sustainability so they can expand.
As you are seeing owners join you at Econologics, is it a general rule of thumb that they are not tracking KPIs, especially as it pertains to production and profit?
Yes and no. Are you talking about KPIs in the business or KPIs in the household?
The KPIs in the business, I’m talking specifically. Can they read their financial reports? Do they know how to read a financial statement? Do they know their profit margin? Do they know the average? Do they know how many visits per week they need to see in order to make a profit? Do they have some of those?
There is some of that, but it isn’t as dialed in as much as it needs to be. It all depends on how mature they are as an owner. The younger owners are a little bit more like, “I need to see new patients.” As you get to that point, I’m sure you had that point. You are like, “I need to understand what these statements mean. How does that affect me? How do I manage the resources better of the practice so that I can expand?”
There is an overall not wanting to look so much at the numbers that much. That is where having either a consultant or advisor puts it in your face like, look, “Here is the reality here. You have a 3,000-square-foot facility. There are many patient visits that you need to be seeing per day. Here is where you are losing income. You have this facility that could see, I don’t know how many patients a week, and you are seeing 200.” There is one gap right there that you can look to fix. How do you fix that? To your point, like looking at your insurance contracts, what does my reimbursement rate need to be for me to be profitable? That means I can’t take this anymore. I can’t do it.
Because they are standoffish to the numbers, I think they use that ignorance or naivete to not address it. They come up with excuses, turn a blind eye, get distracted by other things, or say, “I would rather go treat patients.” The owners that are successful are the ones that when they have their half day a week or two half days a week where they should start to work on admin stuff. They are not paying bills, but they are looking at the financial statements. They are setting up meetings.
This is what I did. I told my CPA, “You need to show me what my cashflow looks like. What is a financial statement? How do I read this?” We set it up every month that we would walk over all the numbers, and it wasn’t long before I figured out, “I need to make about this much money to maintain this profit margin. That equates to this many visits per week.”
That right there is where you are going to find the fatal flaw for most owners. They wildly underestimate how much they need to be bringing in for them to remain profitable. When I say profitable, I mean it is not enough to pay your bills. It is compensating yourself, having money in business reserves, being able to pay your taxes and all these other things that we incorporate so that demand is correct. I still think that is the reason why most people are insolvent. They are operating on the wrong number of where they need to be. That would make it easy to make some of these decisions. If you knew what that would be, you would be like, “There is no way I can take this insurance contract. I need to see somebody else at this amount if I’m going to hit my number.”
I was talking to a friend who is losing money monthly on his PT practice. I asked him at lunch. I said, “How many visits a week do you need to at least make a profit compared to where you are now?” He wasn’t sure. That surprised me. You are in such financial straits. You still haven’t got down to the data of, “I need this many patients per week in order to generate a profit and correct the current course that we are in.” He didn’t have that.
I’m sure if I got into some of the weeds, like, “What is your average expense per visit? What is your average reimbursement per visit?” You might be able to come up with some roundabouts. Not knowing the data and being in the weeds in your financials is going to be limiting because when issues come up like inflation, increase in salaries, wages, and the cost to do things, it is going to bite you. You are going to find out 6 to 12 months down the road when you could have figured that out within a month or two.
It allows you to take some course corrections of maybe we need to see people every 30 minutes as opposed to every hour. It is going to force you to make changes to your practice. That doesn’t mean that it has to sacrifice the quality of care. You have to get a little bit more innovative in how you do things and move a little bit faster. Speed kills with money. Money and speed go hand in hand. You have to make sure that you are seeing people. If you do things fast, anywhere in the organization, you can say, “Where can we take some time out of this?” It is going to improve the productivity of the practice overall. We are going to talk about the mindset of people that are in charge of the money lines.
I found that my most successful billers, in particular, have a certain personality type. It is dogged. That might sound bad because they are mostly female, but I don’t know what other adjective to use. They take it personally that the insurance companies aren’t paying, even if it is $18. They were like, “No, you are not going to keep that $18. That is my money.”
They get excited about how they got this check from the insurance company that they told me was denied several months ago, but I have worked hard. I finally got $100-something where you are like, “I rather you spend more time on other things instead of going after $100.” You want that personality type that is not afraid to fight for the money, not with insurance companies. Maybe the fight isn’t much there with the patients. Some patients it is, but not afraid to say, “We provide a valuable service, whether it is you or the insurance company, we deserve to get paid for it.”
We call it the bulldog personality that you need on the money lines. You do need someone that will grip and not let go. It is that important to them to be able to collect money because that is the lifeblood of the organization. That is where it gets a little dicey. $20, $18, and $50 here, you talk to thousands of patients. That adds up over time. The character and the mindset of the person, the biller or front desk person, whoever is in charge of that has to be a killer when it comes to being able to ask for money.
One thing I found as I was interviewing front desk personnel was their aptitude for asking for money without being ashamed, embarrassed, or scared. I’m looking for the fear they might have when they ask for money. That is one of the questions I’ll ask in the interviews, like, “How do you ask for money, especially if someone has a late balance or it is $250?”
It is the new year of 2023. There are a lot of deductibles that come due. My practice did a lot better when we collected the deductibles at the time of service and did not wait until the EOB came eight weeks later. That is money lost by letting them walk out the door without paying. The owners that don’t put those policies and those types of people in place to collect the money, I like the word you use, they are being nice when they are lacking courage.
It takes courage to ask people for money. That is why the best salesman always has money. They don’t care.
This is a transaction. I’m giving you value, and in exchange, you give me money.
You have to think like a teenager or a child. You have kids. I will tell you about having kids. At what point were those kids ever afraid to ask for something? They will ask for anything. They were like, “I want this. I want that.” The people that are responsible for collecting money have to have that same mentality of a six-year-old that says, “This is mine. You are not taking it away from me, and I want it right now.” Kids can teach us many valuable lessons about money in life. It is crazy.
I like how you brought up the kids thing because my teenager asked us. He didn’t have enough money to take a girl on a date and he expected us to give him the money when he hadn’t had a job for some time. He was appalled that we wouldn’t give him the cash.
They have this look on their face like, “I can’t believe you said no to me.” You have to have that same mindset when you are dealing with the public. If you can, things are going to work out well.
My business did its best when I had a biller that had that bulldog personality, and I had a front desk person that wasn’t necessarily asking if they wanted to pay their copay or deductible. They were like, “Your deductible is not met. We are going to collect $200 per visit until it is met. How would you like to pay?” They are straightforward. They could have come up with all kinds of creations and excuses, but no, that person at the front desk was going to get that money. When I had those types of people in place, that is when things did better for me, and my profits were greater.
This is still a great business. It still can be a profitable business, but we talked about 6 or 7 things that you can do internally to make sure you are staying profitable. How many people want to do it? I say this all the time, “Ninety-nine percent of your financial condition is not due to any outside external factors, which everyone says they are. It is an inside job.” If you look, it is 6 to 7 different things that you are not doing internally that are keeping you from being able to have the profit margins that you deserve. It is that important to know that you can control the outcome, but you got to be willing to confront it.99% of your financial condition is not due to any external factors. It's an inside job. It is probably six or seven things you're not doing internally that keeps you from having the kind of profit margins you deserve. Click To Tweet
I mentioned the inflation a few times, but with expenses going up, I had a conversation with my son. He is on his own for the first time in the world and learning what it takes to get by. He is living on a paper-thin margin when it comes to money. With any unexpected expense, he can have a tough time covering rent the next month.
When I was talking to him, I said, “I rather see you focus on what you can do to increase your revenue versus decrease your expenses. Yes, you shouldn’t be eating out as much and you should be going to the grocery store, but simply go ahead and do that, but don’t leave it there.” I would love to sell owners the same thing, “You should be aware of your expenses and your KPIs, especially regarding financials, production, and average reimbursement. Do you have a plan in place or at least have a goal this year to increase your average reimbursement per visit or increase your profit margin? Is that singular thing part of your plan?” That is what it is all for.
I don’t know any therapist that is going to sacrifice patient care to meet those things. Why isn’t it one of your priorities in 2023? How do I at least maintain or significantly improve patient care and increase our reimbursement or profit margin in 2023? You can do all you want regarding decreasing expenses, but your focus needs to be on increasing and expanding that revenue base.
I have never seen anyone do that successfully where it makes a meaningful difference. You have to get your marketing dialed up. It is never part of a successful formula for expansion.
We are going to cut our way to the top.
Even governments can’t do that. They think they can, but they can’t. You have to get people more productive. There are two sides to inflation. It is the demand for money and production. Inflation could best be defined as that there are dollars chasing a few products, which is going to raise the prices of those products. How do you fight inflation? You get more productive because when you create more production, whatever the dollars are in circulation now, will lower the prices of things. What you can do as an owner is get my people more productive. My best hedge against inflation is to get people more able to do their jobs faster. That will allow us to handle any inflation issues that we are going to have to deal with.
The last thing I like to say, and I don’t know if it requires a discussion, I’m guilty of this myself, is that 90% of the owners out there don’t have their contracts available to them at any given time to know what they are contracted to.
Why is that? Are they hidden in some secret vault?
You sign on the dotted line and you forget it. Nowadays, they might have emailed you the signed executed contract so it is stuck in your email inbox somewhere. If you were old enough to have paper contracts, they are collecting dust somewhere deep.
Are they 100-page contracts?
They can. What was interesting in my conversation with Trace is he signed that contract with UnitedHealthcare many years ago. He didn’t have it but they found it as he talked to the contract manager. They also found that since he signed it, UnitedHealthcare had acquired a lot of these other smaller insurance companies. All those smaller insurance companies got added to that contract. He found that one contract also had six additional contracts tied to it because of all of UnitedHealthcare’s work in the past couple of decades. I was surprised that they found the contract because I have heard plenty of times when you might talk to the provider relations at any insurance company, and they are going to slowly walk that request to get you your contract.
How many contracts should you have? Do you think there is a set number or is the quality of the contracts?
It could vary based on the quality of the contracts. When you open up a clinic, and this is how it was when I opened up, you take all commerce, Blue Cross Blue Shield, Cigna, Aetna, UnitedHealthcare, Medicaid, and Medicare. You are going to take them all to be available to get things off the ground. You don’t want to tell any doctor that you are limiting. That goes back to our fear mindset. That can be tough to find them but it is necessary.
Another important question is when you go to sell, how important are the quality of those contracts to the buyer?
That came around to bite us. We didn’t have them on hand. We had to scramble, find them, talk to the insurance companies, and get them. It was a headache.
Your business is based upon this particular contract. The number one on my checklist is to make sure I understand that contract and what it looks like and have it somewhere. That’s a responsibility point of being an owner of making sure you keep all your compliance lines in. That is something that everyone can do. You can call up, find the contract and keep it on the cloud somewhere where you have a copy of all these things.
If you use a credentialing service, maybe they have that for you. You have access to it and you should be able to find it. That is one last thing I want to bring up regarding contracts, but anything else you want to share before we sign off?
We deal with the frustrations of PT owners, and I do get it. You can feel they are torn between this idea that I have to provide this care for my community. Who else is going to do it? Do I have to sacrifice myself, my financial future, my business value, and all those things to do it? That is not a winnable game to do that. What makes it winnable? Making sure that you are getting paid for the value you are bringing and that you don’t accept anything less is the only thing that is going to make it a winnable game for you.
If the profits aren’t there, you ain’t going anywhere.
That is the title of the episode.
If people wanted to reach out and talk to you, how do they get ahold of you nowadays?
They can go to EconologicsFinancialAdvisors.com. I did write a book, How to Become a Financial Beast. It is still available on Kindle and Amazon. You can go find it there. There is a number of ways to do that.
Thanks for sharing. I appreciate it.
Good to see you again.
- Econologics Financial Advisors
- Trace Kennemore – Past Episode
- How to Become a Financial Beast
About Eric Miller
Eric Miller has been in the financial planning industry for over 20 years. He’s a co-owner of Econologics Financial Advisors – awarded an Inc. 5000 honoree since 2019. As the Chief Financial Advisor for the firm, Eric has had the good fortune to have over 10,000 financial conversations with private practice owners in various healthcare industry and helped guide them into a more optimum financial condition using a proven system.
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