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Transcript
Jason: [00:00:00] So Larry, kicking off our third and final installment of this miniseries on compensation. Mm-hmm. Um, I know we wanted to move over f- uh, from what we previously talked about, where we identified what the challenges are. We did that in our first session, and in our second session, we talked about solutions.
Mm-hmm. In this third and final session, we wanna talk about potential barriers to accessing those solutions. And I know you and I have some things specifically that we wanna make sure that we cover for those that are gonna be listening to and watching this. So let's just jump in. The first of which is if somebody is, is, is interested in going down this route, they might be thinking, how do I budget?
How do I set a budget- Mm-hmm ... an annual budget if my variable comp- if my comp models are variable, if the dollar amount is actually going to be changing and adjusting over time? So let's start with that, if you can address that, address
Larry: that. Yeah, no, it's a very fair question, and, um, we'll address it in two ways.
We'll address it at a very high level, and then let's get practical. Let's get tactical on, on all of this. So budgeting in unit economic multi-site businesses in which, let's take the extreme, 100% of your therapists are paid variable. Mm-hmm. They're paid a percentage of what they produce, of collections.
Wouldn't
Jason: that be great? Yeah.
Larry: Yeah. So it would be wonderful, and it'd also make budgeting a whole lot easier What you tend to do in those environments is you do [00:01:30] the budgeting based off one of two factors. The schedule is one of them.
Jason: Mm-hmm.
Larry: You should have a really good collaborative conversation with your PTs and say, "What is your intention this year month by month of when you plan on taking off?"
Because again, when they take off, they're not producing revenue.
Jason: Mm-hmm.
Larry: And then you base their budget or their annual compensation on what is their, their average daily, you know, production. Okay? Yeah. Y- you could do, do that in a number of ways. You could take their prior year or LTM basis, or average of what they did in a year, and break that down to the number of doctor days.
In fact- Yeah ... the term doctor days is oftentimes a key metric that you analyze in medical and dental world, because the number, more number of doctor days, the more number of production you have, provided you have a volume, of course, which is a huge variable. So it's the reason I don't particularly like using doctor days as a metric, but it's a legitimate metric.
So you do it in part based on the schedule and the production that happens within that, so that you know at any given time that a inexperienced or young PT is likely gonna produce this much, l- uh, middle of the road this much, a rock star who's got all kinds of patients coming in and might have their own PT assistant working under them is gonna produce, you know, that, that kind.
And that's how you budget on the revenue side of it. And so it makes it actually easier. When you have a blended environment, which is what I would expect to see over the next several years, is you'd have that first-year PT that's under that guarantee. Um, [00:03:00] and I, and again, I'm an advocate of that onboarding apprenticeship model, become a master clinician.
But along the way, teach, educate on what they're producing, tying that in. Um, in a lot of the world, those guarantees are only six months. I actually like a year-long guarantee. I don't want my therapist being overly pressured their first year. Yeah. I want them to learn, and I want them to understand that we're investing in him or her, and actually losing money doing it- Yeah
for the most part. Um, and you would budget appropriately on that, on, to the number of new therapists, for, for example. Um, and so that would, that would, that would cause sort of the revenue side of the budget, which is always the hardest to do. But when you get to the expense, you know, one of the things we do in the PT world is we overcomplicate the business model.
At core, I've always believed that PT is a human capital relationship management business. The flip side of that, the investor would say, "No, it's a multi-site unit economic business." So let's take the multi-site unit economic from the standpoint of budgeting. Um, generally speaking, in a service-oriented business, about 67% of your expense is your, is your foot soldiers that go home at night, okay?
They, they wear shoes, they go home, they're human beings, okay? So 67% of your cost, in other words, is salary, wages, and benefits. And in the PT world, you want your salary, wages, and benefits to be somewhere between 45 and 50% is clinical, uh, if you will, of, uh, net revenue or of, of collections.
Jason: Including benefits?
Larry: Including benefits. Salary and benefits. And that, and that, [00:04:30] by the way, is gonna be... Why is it so, that variable so high? Reimbursement.
Jason: Mm-hmm.
Larry: Right? Mm-hmm. So if you're in California, it's gonna be more the higher. If you're in, in Seattle, it's gonna be w- more the lower.
Jason: Yeah.
Larry: Um, and that's for clinical salary, wages, and benefits.
Then you have other operating expenses, which in PT is around 8 to 10%, the lower the better. You know, we don't have a tremendous amount of supply in, in PT. Then you have rent, and that's usually between 8 and 10%. And then you have sort of, you know, so if you're adding there, that's, that's around 70%. And then you might have another, call it 10...
And this is clinic level, four-wall budgeting. Mm-hmm. Not overhead, but four-wall budgeting. And under your expense, you might have, you might have revenue cycle management, 3 to 5%. Mm-hmm. So we're in there, I hope. And then, um, you know, if you have some non-clinical labor, you know, another 10%. So you got to, whatever those unit economics is, divide it between clinical, non-clinical SW&B, salary, wages, and benefits as a percentage of collections or net revenue.
Other operating expense, I like throwing revenue cycle management in there 'cause you have to have that. And if you have any local overhead, marketing costs, uh, or supplies, that should be less than 10%, less than 8 to 10% on rate. And so that is the unit economic business, and so you're managing and you're budgeting to a margin, if you will.
So from that, uh, then you have your overhead and all that stuff on top. Uh, uh, you know, that's clinic level. Then you have company overhead or SG&A, salary, general, administrative, [00:06:00] and that determines your roll-up. If you have more than one site, or if you only have one site, you should still r- run it as a unit economic, you know, P&L model.
Um, so that, that is kinda the, the, you know, the unit economic side of it. And then the tactile side of, the practical side of it is you need to have an understanding of the average daily production or annualized production of a PT And allocate that by the number of days worked, divide it by the number of work days, of course, and, um, and then derive your percentage.
So if you do that now, and this is the exercise I'll walk through with several practices, where they have showed me that their clinical SWB is 45%. Okay, and I said, "What if you said that the benefit component was, call that 10%, 10 to 12%, and you paid your therapist 30%," just using that as a number. I've seen the number as low as 20, I've seen the number as high as 32- Mm-hmm
in PT.
Jason: Mm-hmm.
Larry: Very different medicine. In, in dental it's 25 to 30. But in PT it's probably gonna be somewhere, let's just call it 20 to 30%, plus the 10% for s- for benefits.
Jason: Mm-hmm.
Larry: Right? Now, all of a sudden, you've taken that variable and you've lowered it from this 45 to 55%. But let's just say you kept it where it was at.
Jason: Yeah.
Larry: And that's what I would suggest the first year if you're gonna be moving some PTs to it. At 45%, I'll reduce the component that is the benefit. [00:07:30] Again, let's just hypothetically say that's 10 to 12%. And I'm gonna now have that at, call it 28%, or 30% plus the 12, 42%, if you will, of salary, wages, and benefit.
And so every month, the collections that come in off of that 30%, or the projected collections, that's what you're paying out to the therapist. That's their monthly payroll. And, um- Over time, you can adjust that for bad debt, but you typically do that on collections.
Jason: Mm-hmm.
Larry: Right? Assuming you have collections that are normalized, because the therapists under that model are gonna make sure you have very normalized, very, a good rigor discipline towards those collections.
Mm-hmm. And, and that's what you're managing to. So the budgeting model under unit economic businesses where it's 100% variable costs are the easiest way to budget. The difficulty is, how do you get there and assure your private practice owners that their margin isn't gonna be hugely variable as well? The way you do it is you take that variable and you keep it to its traditional number or less.
Jason: Mm-hmm.
Larry: And what you could find is, even if at its traditional number, it'll become less because their production is gonna be higher.
Jason: Yeah.
Larry: And so as a percentage, it goes down. You're paying them the 42% or 40 per- you know, including benefits, so call it 30%, but their production's likely gonna be qu- you know, quite a bit higher.
Jason: Yeah.
Larry: If it's less, they're gonna make less money, and PTs generally don't wanna make less money.
Jason: Yeah, yeah. Yeah, I think budgeting is very often a concern that w- w- we run into when we're talking with practices because they're concerned about, how am I gonna extrapolate what the year will look like? Yeah, yeah.
If you have the data historically, especially for [00:09:00] that provider, let's say it's not somebody that you are, are hiring right now, but that has been with your team for the last 12 months, you know what they produced- 100% ... over the last year, which is a pretty good indicator of what they're gonna produce this year.
Yeah. And then if you know what the comp model is that they're on and the relative, uh, uh, percentage, size percentage of their variable pay, you can very accurately predict what you're gonna be paying them this year because you're using historic data that came from them versus- That's right ... modeling data.
Larry: A- and the scenario exists, I get this question a lot, which is, okay, I've got a therapist, they've been producing 300 grand a year in their- Yeah ... in their total production. They've gotten lazy on me. They're only at 200 and 250. What, what do you th- think of the counter of that? If they're only seeing X number of patients a day over a longer period of time, what are you gonna do?
You're gonna fire him or her.
Jason: Yeah.
Larry: Just the way that it works.
Jason: Yeah.
Larry: But you don't need to worry about that under this model 'cause they're likely gonna eliminate themselves. They can't make a living.
Jason: Yeah.
Larry: And, and, uh, is that a bad thing? Right? Like, you know, it's, it, it, they're not, you know, there's other environments for you.
Jason: Yeah.
Larry: And those environments are likely gonna be in home health or skilled nursing. They're probably gonna be paid on a more of a salary basis. Yeah,
Jason: yeah. And that's a good point, too, because that question comes up a lot, too, where, "So are you saying that I can just let my therapist do whatever they want?
I can let them work 10 hours a week if they want because I'm paying them according to the revenue they're generating, not how many hours they work?" And my answer to that is always, "No, you should not do that." You have to have, yes, you can have some freedom, and that's one of the benefits of this approach.
We don't wanna babysit [00:10:30] our doctors of physical therapy. We want to give them some freedom and flexibility and autonomy professionally, but we also have to run the business. We have to make sure that we can serve the community and that we have clinicians available to do that. So one of the things that I've typically recommended is sort of a freedom within a framework mentality- Right
where you don't just allow the Wild West, where your providers get to do whatever they want. There has to be a certain framework. In other words- Yeah ... in order for you to have access to 32% of the revenue that you're generating, let's just say that's the number, you have to commit to a minimum of X number of clinical hours each week.
That's your minimum. You can go over that if you want to, but you can't go under that- Yeah ... because we're staffing the clinic appropriately according to whatever your commitment is, and we run into a lot of therapists that, under the current structure, if they're paid by the hour, um, actually usually if they're paid by the hour, the number of hours that they're working week over week could be dramatically varied.
It could be 18 hours this week and 32 hours next week. My suggestion there would be, for the owners listening, to not allow that degree of variability. You can allow some variability, but there has to be a minimum commitment in order for them to maintain their status in your organization and have a s- have access to that certain percentage of revenue share.
Larry: Yeah. I, I generally agree with what you're saying. I probably, I'd probably posit it a bit differently in that we're a service business, we're a relationship management businesses. Our hours are going to be roughly 8:00 to 5:00, Monday through Thursday, and maybe 8:00 to noon on Friday. Just using that as an [00:12:00] example.
Jason: Yeah.
Larry: That's the hours that we're gonna be available for our patients. Yeah. That's usually the last time I talk about hours.
Jason: Yeah.
Larry: I might talk about their average daily production rate or what their expectation is, 'cause I highly believe you have... You can grant autonomy, but it's gotta be within accountability and structure.
Jason: Yeah.
Larry: The structure is, as an average PT for the last several years, you have generated 250 to 350,000 in, in, in net revenue. Our expectation is that you continue
Jason: that. Yeah.
Larry: Right? And 'cause I think it's okay not to expect more than what the average daily production is of a PT. If they do more, great. If they do less over time, then it's not gonna be good for either party, right?
Mm-hmm. But hours, I don't care how many hours they work at that particular time frame, provided I can generally say to my My, um, uh, the community, you're gonna be open from 8:00 to 5:00 and 8:00 to noon. Yeah. So we have plenty of dentists and primary care docs in our models that work four days a week, or they work three and a half days a week.
Three and a half gets a little... W- they're working long hours on those three days.
Jason: Yeah.
Larry: Um, and then you can get the proverbial burnout if you're not careful. But they generally are taking a day off.
Jason: Mm-hmm.
Larry: But they produce more.
Jason: Mm-hmm.
Larry: Right? But they're working not four, eight hours a day. They're not even working four 10s.
They're working according to what, how they in their mind view their average daily production, so that on annual basis, this is what they wanna make.
Jason: Yeah.
Larry: And, and, and that allows you as a manager to say, "Okay, if I'm gonna bring in another therapist, I'm [00:13:30] going to start them on the hours that I know you're not gonna be here, overlap with you X number of times so that I can more adequately staff it."
Because again, I wanna be open from 8:00 to 5:00 Monday through Thursday and 8:00 to 12:00 on Friday. Yeah,
Jason: that's-
Larry: Using that as an example.
Jason: Yeah. Yeah. And this is a good segue into one of the other things that we wanted to make sure that we covered.
Larry: And, and by the way, let me go backwards for just one second.
Jason: Yeah.
Larry: That's in clinic Therapists that are under variable comp are also doing remote therapeutic monitoring at home.
Jason: Mm-hmm.
Larry: They're also doing other aspects that generate revenue. Mm-hmm. And that's an important point.
Jason: Mm-hmm. Mm-hmm. Yeah, absolutely. Absolutely. And I think we wanna then bridge over into the concept of how to actually structure these models, uh, because my guess is individuals that have been listening to our first two sessions have heard us say multiple times, "You're gonna be paying your therapist more."
And you may be thinking, "I already have no margin. So Jason and Larry, you're telling me I should be paying my therapist more. Where exactly is that money going to come from?" Can you talk about the actual structure, mechanical structure of what the percentages should be when somebody's designing a variable comp model?
Larry: Yeah. So let's take a clinic that's got one therapist. Let's use the extreme easiest example.
Jason: Yeah.
Larry: Okay? And by the way, that's another thing that's changed over the years, and we used to model de novos. We start out at one therapist, and then you grow from there. Mm-hmm. I don't think you could do an adequate de novo model with one therapist anymore.
At least your wrap-up time is, man, it's tough, right? Yeah. You can do [00:15:00] it, but you have... You better, you know, uh, people are really enthralled about a union economic model of PT because their de novos are, you know, 150 to 200,000. In dental they're a million and a half bucks, right? Yeah. So there's a lot more rigor that goes into that kind of thinking.
It's just much higher overhead, more equipment-oriented world. Primary care the same way. Now, primary care could be as much as 300,000 de novo because you gotta have a medicine cabinet and you have to have- Yeah. Yeah ... this. You have to have nurses, and you have to have all the other kind of things. But at PT, let's just use a single PT, and let's say they produce 300,000 a year.
L- Let's use 250.
Jason: Mm-hmm.
Larry: Okay? And let's say you're paying them 80,000 as a starting salary, just an example. Maybe it's 90, but let's use 80, and you have factored their benefit cost, and their benefit cost is about 30% of their salary. So that's 24,000. You're really paying them 104,000 of $250,000, okay? Okay, take that math, okay?
Take that 33%, you know, would be 300,000. So let's say it's 27% of that model, or 100... Let's, let's take a... It would be 104 over 250. That's, uh, 40%, okay? Mm-hmm. You will use 40% for mathematically. I'm pretty close on the math there. So what you're gonna do is you're gonna say, "I am gonna convert from 40%-" To we're gonna pay you 30%, and we factored your benefit cost.
When I said the percentage of benefits, I was gonna do it as a percentage of their $80,000 salary, not a percentage of the overall comp. A percentage of the overall [00:16:30] count, comp is about 10 to 12%. Okay? So I'm gonna now pay you so that, so that l- let's just use again that 40%. I'm gonna pay you 30% in rev share and 10% in benefits.
I'm still gonna... You're still gonna get s- same core benefits. Mm-hmm. And for PTO purposes, let's just leave that out of the equation for right now. Yeah. Or, or put it in, but just the math numbers change. And you say that's what you're, you're going to get paid. So the therapist, you're not paying them anymore.
If everything stays the same, you're paying them the same.
Jason: Mm-hmm.
Larry: If the therapist produces more, you're benefiting more and the therapist is... You are paying the therapist more, but guess what? You're paying more 'cause you've gone from 250,000 production to 270,000 production.
Jason: Yeah.
Larry: And yeah, they're getting, you know, 30% of that number.
And by the way, the benefit number doesn't, doesn't change. You know, you've kind of fixed that cost, and so you're really benefiting a whole lot more. Mm-hmm. That's the math of it.
Jason: Mm-hmm.
Larry: Um, and you could draw that out on a spreadsheet and show them, but that's where I would start. I would take the extreme example, one therapist, what is the average production?
What should it be? And I would take out what their actual comp is, plus their benefit cost. Figure out what that benefit cost is of the total comp out of 250,000, let's say it's 10%, that'd be 25,000 in benefits, and I would take their salary cost as a percentage of it. Let's say that's 30%, and that's what I would pay them.
I'd pay them 30% every month of collections.
Jason: Mm-hmm.
Larry: And, um, a- and, and if you're not doing it but you wanna prime up to that, show them [00:18:00] it Pay them, go ahead and pay them their salary or whatever- Mm-hmm ... but show them what the reality is if you would've gone to this model. Yeah,
Jason: yeah.
Larry: That's the extreme example.
Now, there are other examples where you have a guarantee plus a variable. Mm-hmm. There are examples where at 30% above 250,000 in annual production, either on a monthly basis or annual. So what I would probably do, so you, th- your 250,000 is based on 30%. You're not gonna do anything above 250,000. Once you hit 250, we're gonna give you 35% of that.
Jason: Yeah.
Larry: Man, that's a big incentive.
Jason: Yeah, yeah. And I think that's powerful because when you have a therapist that's increasing their productivity, increasing the amount of revenue they're generating above a certain threshold-
Larry: Yeah ...
Jason: you don't have to turn the lights up any brighter- Right ... or turn the heat up any more because that therapist is seeing more patients.
So disproportionately as the owner of the practice, you have more of that money available- 100%.
Larry: Yeah, yeah ...
Jason: because that individual has already covered their cost to the organization. Yeah. So it's just yet another example-
Larry: Well, that's the magic- ... of unlocking profits ... of fixed versus variable expenses.
Jason: Yep.
Larry: And salary, wages, and benefits from a pure accounting standpoint are a variable cost.
Jason: Mm-hmm.
Larry: We've approached it as a private practice mentality as a fixed cost- Yeah ... and it's absolutely crazy. Yeah. Yeah. Mm.
Jason: Yeah. I completely agree. Well, let's, uh, let's flip the, uh, flip the script here- Yeah ... uh, and, uh, give you an opportunity to ask me any questions.
I've been asking you a lot of questions.
Larry: Yeah, you've been doing this a long time, and I'd like you to give us some real world examples of pitfalls, successes, successes that [00:19:30] for whatever reason were dropped. And that would be one aspect of it. The other aspect would be therapist buy-in. Not employer buy-in, but therapist buy-in.
Let's start there. Give us some examples, real-world examples. You've been doing this, um, pre-Prompt, uh, as Onus, now under, under Prompt as compensation as one of their verticals, or, or, you know, c- collateral businesses within Prompt PT.
Jason: Yeah.
Larry: Tell us what it's like.
Jason: Okay. Well, I've never ... I don't think I've ever run into a practice owner who says, "This idea is a bad idea."
Never once. What many owners do say is, "I'm afraid to do it."
Larry: Mm-hmm. "
Jason: I either don't have the time to do it because I'm so overwhelmed, I'm on the ham- hamster wheel and I can't get off."
Larry: Yeah.
Jason: Uh, or, "I don't know how to design the models," or, "I'm afraid that my therapists won't adopt those models or won't like it."
So those are the primary, uh, pain points that we typically see. Um, in terms of what we've seen historically, one of the things that is very likely to cause a failed rollout is not allocating adequate time or resources to such an important strategic change. Short of changing EMRs, overhauling your compensation structure is probably not only the most important, but the p- potentially risky, and certainly- Mm
the most involved process you can go through. So to try to do it as sort of an afterthought or a little project on the side is not a good idea. If you're gonna make this change, and we've talked about this in prior [00:21:00] episodes, you have to be all in on this change, and practices that are not all in are gonna fail.
Here's a perfect example. Um, we might talk with a practice owner. The practice owner might say, "You know what? Let me go pitch this to my therapists and see what they think." And they don't have any data to show the therapists. They don't have the models built yet. They haven't worked out what PTO is gonna look like or anything, none of the details.
Instead, they go directly to their therapists and they say, "Hey, therapist who is being currently guaranteed X dollars per hour or X dollars per year, would you prefer to be on a variable comp model?" We know what the answer is. In every case, the therapist says, "Um, no. No thank you." And then of course, the owner says, "Okay, well then I'm not gonna move forward.
I'm not gonna do that." Yeah. That is a really bad idea to do that. If you're gonna show it to your therapist, you have to show the totality of what the program is-
Larry: Yeah, yeah ...
Jason: to your therapist. And that includes, by the way, showing them historically-
Larry: Mm-hmm ...
Jason: what their pay would have been based on their actual data, not made-up data, but actual data.
So this is one of the other things that we recommend and that we've seen fail potentially in the past, where we don't have enough historic data. You really need, in our, in our experience, at least six months worth of historic data, a therapist's own data, to show them, over the past six months, your pay would've been X had you been on plan A, plan B, or plan C.
And I [00:22:30] think the reason six months is so valuable is, as we all know, our business is cyclical in nature. Typically, we have an up quarter- Mm ... a down quarter, an up quarter, and a down quarter. At a minimum of six months, you're likely to capture some of the ups and some of the downs. Yes. But ideally, it would be 12 months.
12 months worth of data is definitely the way to go because- Mm-hmm ... then that's, that shows you the entirety of that up and down cyclical nature of our business.
Larry: That's great. And on the therapist buy-in, so let's say they were, um, they've seen the data, and they've had some time to decompress and on-ramp appropriately.
Give us some success stories.
Jason: Yep. Yep. Yeah, so there are key components to success with this program in terms of therapist buy-in. Mm-hmm. Um, any time you're gonna introduce variable comp models, number one is you have to offer choices. That's key, number one. Rather than... You know, when I started doing this, my goal was to work with as many practices as possible to have them require their therapists to go on variable comp models.
In other words, we're not offering a salary anymore. We're not offering a pay- Mm ... by the hour anymore. That's gone. You have to go on one of these variable comp models. The reason I was doing that is that mathematically it makes sense- Right ... as we've been talking. It truly is a win-win scenario, both for the employee and for the employer.
But what I've learned is when you're introducing these models to therapists, they're not thinking about it as a math equation.
Larry: Right.
Jason: They're thinking about it [00:24:00] from an emotional standpoint. So if you require them to just rip the Band-Aid off- They can't do it. They can't do it that quickly. However, this is what we've seen happen.
If you introduce multiple models, let's say one of the models is whatever your current structure is, maybe it's a salary model, and then your next structure is a little bit riskier, and the next structure is a little bit riskier. Initially, the vast majority of therapists, we've seen this, we have the data, will choose the most conservative model because they're risk-averse.
But fast-forward two years, more than half, in some cases 75%, Of those therapists will actually self-select out- Right ... of the very model we're trying to get them out of- Right ... for their benefit and, and ours. Mm. And they will self-select in to one of these other variable comp models. And the reason that happens is they're not being forced to do it, and they're being able to actually track their own data over time.
And they're looking at it and saying, "Should I be afraid of those things I'm afraid of?"
Larry: Yeah. "
Jason: If I think about variable comp, well, what about snow days? Or what about deductible season? Or what about periods of time where the volume is slow and I don't have any control over that? So I'm afraid of these things, that's why I don't opt in initially.
But once I have two years worth of data-
Larry: Mm ...
Jason: I can look at January and say, 'Was it really as bad during deductible season as I thought it would be?'" In most cases, the answer is no, especially if they look at their annualized earnings at the end of the year on their W-2 and they see, sure, Ja- January might've been a little bit light, but at the end of the year- Mm-hmm
I would've [00:25:30] made $18,000 more had I been on that plan. I'm interested in doing that. So that's a very powerful tool to look at it not from a mathematical equation- Mm-hmm ... because we have to be careful not to do that. We have to build the models mathematically, but we have to rule them out from an emotional standpoint and a behavior modification standpoint.
Larry: Yeah, no, it's interesting. You know, what I've seen in play out, and that- that's the great success story, and again, putting it in their hands allows limited choices, and then over time see how they self-select into the more riskier model.
Jason: Yeah.
Larry: And by that point they're probably not thinking that it's risky anymore.
Jason: Correct.
Larry: I think, I, I think that, that, that's a very appropriate way. Unfortunately, what I've seen is just the opposite take place. Here's what, here, here, here's what happens particularly under this high inflation time period post-COVID. Um, you know, call it the 2000, uh, you know, 21, 22 time period where shortages hit- Yeah
and then all of a sudden you add this huge increase in inflation, both at the salary level, supply level, rent level. Everything's going up, right? They would, they would recruit new therapists. They hire new therapists. The new therapists they were hiring they were paying more than the therapists that were already there a year or two.
Jason: Yes.
Larry: Many of those employers had to go back and start paying the other therapists at the same rate that they paid the ones. Yes. And that'll happen at a combined section meeting this year. Yes. Therapists will come in, they'll all get on social media and their, their text grids and they'll say, "Oh, this employer's paying that, plus they're doing a sign-on bonus, plus they're doing that."
All that is a mechanism of confusion.
Jason: Yes.
Larry: If you tell me you're paying me this sign-on bonus, that benefit, that benefit, that benefit, then the, the only thing at the end of the day I know is what I'm getting in my payroll. [00:27:00] And now that I'm out of college or out of grad school, by the way, a lot of taxes are taken out.
Jason: Yes.
Larry: They forget about sign-on bonus. They forget about the scholarship. Yeah. They forget about all of those kinds of things. It's what they're making on a take-home basis that ultimately matters. And, um, the more that you can actualize that to their known knowns, the better.
Jason: Yeah.
Larry: Tell us about stories, pitfalls.
When didn't it work? And were there times where it worked but the employer- couldn't deal with it and they reverted back to a, a true comp model of salary or hourly?
Jason: Yeah. Well, uh, we have, we certainly have examples of times where it did not work, and the, the themes are very consistent. Um, number one would be not following our best practice strategy, and specifically what we just talked about a minute ago.
There has to be a ramp-up period. There has to be sort of a shopping period where the therapist has the guaranteed model on the table, and they can be shopping for a plan without having the stress of knowing that the guaranteed model is off the table. Okay. So if you don't do that, it's very difficult to get therapists to wrap their head around that, even if...
And I've seen this. I've seen practice owners try to convince a rainmaker therapist who's just a top producer, and this was all before variable comp models And you introduce a model to that type of therapist and you say, "Look at this. If you were on this variable comp model, you would've made [00:28:30] $25,000 more last year than you did this year."
That therapist, in most cases, will not look at the top end that you're trying to show them. They're gonna go right to the bottom, and they're gonna say, "What's that number down there? What's that 30,000? Is that my base? No, thank you. I'm not interested in that." And we say, "Well, yeah, but look over here. You could've made $25,000 more."
And they say, "Mm-mm, I'm looking over there, and I'm seeing that the b- the, this whole thing could fall apart, the bottom could fall out of this, and I could be stuck making $30,000. Thanks, but no thanks." So practices that require therapists to rip the Band-Aid off- Mm-hmm ... usually are gonna fail. If they give them the option over time where the therapist can self-select into that program, that's when they're gonna succeed.
So that's, that's one component.
Larry: Okay.
Jason: The other component is not being clear on what you want the outcome to be as far as the design of your plans are concerned. For example, we always ask practices, "When you're going down this, down this road, what is your goal? Is your goal to improve employee retention and recruitment even if you're willing to pay a little bit more- Mm-hmm
for it? Or is your goal to improve your EBITDA? Is your goal to improve your bottom line?" You have to get crystal clear on that because that will inform the structure of the plans, the structure of the models that are built. And if you're clear on that upfront, but then you change that what you want on the back end, obviously those two things are not gonna line up.
So what I've seen there is, and this [00:30:00] happens in particular with larger organizations where there are eight to 10 people that are involved in the initial process of designing the models. And you might have this one camp over here that says, "Hey, if we've gotta pay people $20,000 more, but that enables us to keep our rainmaker therapist, we're willing to do that.
That's a good return on investment 'cause it costs a heck of a lot more- Right ... to replace that person." So that camp over here says, "Sure, let's do that." But then this camp over here says, "Well, no, we can't do that because then that's cutting into our margin, or that's cutting into our EBITDA. What we really need to do is build models and introduce models that are guaranteed across the board to increase our profitability."
Those individuals have to get on the same page-
Larry: That's it ...
Jason: on what they want to actually, what they want the outcome of those models to be. And we have run into scenarios where that isn't the case. Uh, one, for whatever reason, group ends up overriding the other group.
Larry: Uh-huh.
Jason: And then that changes in the future.
Larry: Yeah, yeah.
Jason: And at that point it's very difficult to go back and change the models.
Larry: Right.
Jason: Because now you've got these rainmakers that are killing it, that are loving it- Yeah ... and we have to say, "Sorry, guys. The models are paying too much. We have to roll them back." Better to start here and go up than to have to start here and take money away and go back down.
Larry: Yeah, and those therapists are like, could leave to go to an employer that would embrace the model and their-
Jason: They could.
Larry: Uh, but talk about the consequences when it has been positive on either retention, burnout, um, [00:31:30] profitability- Yeah ... margin. Um- Yeah ... gi- give me s- give me, give me some more s- give me some, uh, true in the field, uh, experiences.
Jason: Yeah. It's funny because the, the concerns that are most voiced to us, uh, "We're worried if we do this, that this negative thing is going to happen," in almost every case, the opposite is what happens. Yeah. And I'll give you an example. Um, recruitment. "So if we go this route, we're not gonna be able to recruit therapists."
What we have seen is exactly the opposite occurs. Uh-huh. And here's why. If you go back to our example earlier of a $80,000, ordinarily $80,000 therapist, you might wanna hire this therapist at $80,000, and the therapist comes in and asks for 95,000. Without variable comp models, that's a yes or no proposition.
Larry: Uh-huh.
Jason: You think, "Oh, great. I either give him the $95,000, and I'm way in over my head on this therapist." Right. "Unless they just magically happen to be a top producer," which is unlikely to do, or I say, "No, I'm sorry, I can't. That's outside of our pay band," in which case I might not be able to, uh, get that therapist on board, and I don't know when the next candidate is coming along.
Those are your only options. With variable comp, you have a third option. A third option is, "Ordinarily, we would hire you at X," whatever X is. "You'd like to make $95,000. Great. We have three plans that will get you to or past $95,000. Let me show you the path to that."
Larry: [00:33:00] Yeah. "
Jason: By the way, is that all you'd like to make, or would you like to make more than that?
Because the, the plans go past $95,000. You tell us what you wanna make. We'll do everything in our power to support you to get you to that point. We want you to make what you want to make." Right. It completely flips the script, and initially you get this sort of blank stare, in particular from new grads, 'cause they've never heard of it before, but as they think about it and you show it to them, it becomes a powerful, a powerful, uh, recruitment tool.
And the other thing I will say about that is, um, the number one group, this is very interesting- During your grace period, a lot of practices will allow an open enrollment, an early enrollment. We're gonna give you 12 months- Mm-hmm ... of grace period or a ramp-up period. But you're a new grad, your loans are kicking in.
If you're liking what you're seeing in terms of what you could be earning if you were on a variable comp model, as long as we feel comfortable, we feel like you're ready, and your documentation is where it should be, and you're providing quality care, and you're being able to manage your caseload, we're willing to let you jump on to one of these variable comp models early.
The number one group that is most likely to do that is new grads. Interesting.
Larry: Interesting.
Jason: And it's very interesting because I think part of it is I was hired at 80. For, for the work I'm doing right now, I could be making 95. My student loans just kicked in. I'm ready to go. I don't wanna wait- Yeah, yeah
all, all the way to the end. So initially, if you force... It's very interesting psychology. If you forced them on a [00:34:30] variable model, they probably would not have taken the job. But- If you give them a guarantee and you give them the option of a variable model with a long enough runway, they will then opt in when they're ready.
Larry: That's right.
Jason: So the timing is really
Larry: important. So you give them a start with new grads. I'm a big believer in onboarding properly and, and doing the guarantee. But I do wanna emphasize to our listeners, um, that compensation, we've now done multiple podcasts on compensation, but I wanna put it in perspective.
On all employee engagement or enga- uh, employee inspirational surveys, 'cause I'm no longer a believer in satisfaction. You either engage or you inspire your employee. Comp doesn't come up as number one.
Jason: Yeah.
Larry: So while we have been emphasizing comp, it's a way that they can create a sustainable living for themselves that is also win-win for the employer.
Jason: Yes.
Larry: It's not risky. Yes. It is an expectation that you would have, but you have to have the other elements. You have to have the celebration pay. You have to have a, you have autonomy, purpose, mastery. You have to have a meaningful work that impacts lives, and you have to have all of the, uh, uh, number one, two, and three before you get to comp correct to have a good compensation model.
If you're using comp as your number one attractor for engagement or inspiration, you're already failing regardless of the comp model.
Jason: Yes.
Larry: And that's what we see in the marketplace right now. Yes. So I do wanna put this in perspective because it is critical to get to a [00:36:00] comp model that is true variable, but you gotta have the other elements to create a sustainable, thriving work, flourishing workplace that attracts other people to it.
Jason: Yeah. And, and I think it's an important point because not all therapists, in fact, there are quite a few therapists that are just simply not financially motivated.
Larry: Yeah.
Jason: They're not. And so what they may appreciate about a variable comp model, and what's great about it for you as the owner, is it's self-governing in terms of the cost.
Yeah, of course. Yeah. Like a comp model, it automatically adjusts your largest expense, which is your salary cost. Um, what a lot of therapists will do is they will ramp up or down their productivity, if that's a word that we wanna use- Yeah ... or their relative contribution based on what's happening in their life personally, and that's a great thing for them to be able to do that.
Especially when we think about the vast majority of therapists are... I think the statistic I saw recently is the vast majority of therapists, I think it's 75%, that are actually treating patients are under the age of 37.
Larry: Wow.
Jason: So your high 20s, early 30s, this is therapists that are treating patients. If we think about what's happening at that point in life, your life is changing very quickly year over year over year.
You might be going from five roommates to no roommates- ... to buying a house- Yeah, yeah ... to having children. So what you want out of your, out of your comp structure could be very different this year than what you want, what you wanted last year-
Larry: Yeah, yeah ...
Jason: out of your comp structure. And so it's important for us to understand that one of the benefits of this approach is [00:37:30] if I'm trying to save for a house, for example And I'm in a salaried role.
What is my option? My only option is to go to my employer and say, "Could I have a raise?" But if I'm on a variable comp model and I'm trying to save for a house, I could work 55 hours a week for the next six months and see more patients, generate more revenue, save up the money that I need to save up. I might not wanna do that forever.
Right. I can ramp it back down when I achieve that particular goal. That approach resonates, and, and I've seen that resonate very effectively with treating therapists given the, the typical age demographic that they're in.
Larry: Yeah, it's interesting. You know, I see sort of two ends of the spectrum, and I'd like you to comment and react to this a bit.
Of course. So there are a number of therapists that have side hustles. Yes. New graduates that come in, they're on a salary, and they say, "I need to make more money."
Jason: Yeah.
Larry: So they do home health, they do some evening part-time stuff, maybe acute care on the weekend or whatever.
Jason: Yeah.
Larry: By the way, to business owners listening, if you have therapists that do that and you don't offer them a variable comp model, you are killing their career.
Jason: Yes.
Larry: You're absolutely crushing their career. But I do see that. I also see the opposite, and you mentioned this in our earliest podcast, which is those that only wanna work 31.5 hours. Yeah. Talk about that.
Jason: Yeah. Yeah, so I think, um, histor- Let me take the second one.
Larry: Yeah.
Jason: The second one first. Um- I do think it is interesting because 10 years ago, if, [00:39:00] if a owner was interviewing a therapist and the therapist said, "I wanna work 31.5 hours," um, the owner probably would not have hired that person.
I understand. They would've said, "Well, I've got six other candidates that I'm interviewing after you.
Um, I need somebody that wants to commit full time." Um, I think part of that piece is supply and demand. Um, if somebody wants to work 31.5 hours but they wanna get paid as though they worked 40 hours, that's the piece where we have to help therapists connect the dots. We have to help them understand the connection between what they do in the clinic and what shows up in their paycheck.
Most therapists do not understand that. In their minds, it, those two things aren't even related. Mm-hmm. It's an epiphany for them when you introduce that concept. "Well, what does that have to do with it? I thought you were paying me because I have my OCS. That's why you were paying me X number." Yeah. "No, we're paying you X number of dollars because you're producing Y.
So if you want to work 31.5 hours, you can do that, and your pay, it's going to be difficult for you to hit whatever threshold of income you'd like to hit at 31.5 hours." The difference is you're not making the decision for them. You're giving them information. You're arming them with the data. You're inviting them into the economics of healthcare delivery and letting them come up with solutions.
Now, if after doing so, that person's comfortable working 31.5 hours and making less money, you get to decide as an owner whether you're okay with that or not. Um, if that person's working 31.5 hours and is not [00:40:30] comfortable with the amount of money they're making, the solution there then is for them to either get more productive during their 31.5 hours, and that doesn't always m- mean treating more patients.
Maybe it just means better billing methodology, not billing two units when you could have billed three and a half. Oh,
Larry: yeah.
Jason: Or not billing, not choosing certain CPT codes when you, your clinical documentation supports other CPT codes. Or it could mean 31.5 hours just isn't gonna cut it for whatever your economic goal is.
So rather than making the decision for them, you're giving them the opportunity to make the decision, and you're arming them with all the information. So that's what I would say about that end of the spectrum.
Larry: Yep.
Jason: Now, the other end of the spectrum, the side hustle piece, um, you're right. Th- this, this is very prevalent.
Um, if somebody has a side hustle and they work for you full time, that is a symptom, in my opinion, of a fundamental crack in your comp structure. Yeah. Because they're looking elsewhere-
Larry: Yeah ...
Jason: for additional income. So if you're listening to this podcast and that's happening in your clinic, there's a crack somewhere in your comp structure.
Now, the crack in your comp structure could be the variable comp model that you're on. I don't mean to imply- No,
Larry: sure ...
Jason: that anybody that has a crack in their comp structure is on an hourly rate or a salary rate. That may not be the case. What it might mean you need to do is revisit your variable comp structure.
Mm-hmm. We talked about this earlier. Do you have tiers? Maybe you don't. So if you don't have [00:42:00] tiers-
Larry: Mm-hmm ...
Jason: if the percentage revenue share that you're offering is the same across the board and it never rises, that could be a scenario where a provider's saying, "Well, I could work more, but my percentage doesn't change.
It's always X%." Mm-hmm. But what if that percent were to change if they were to get to a certain level of productivity? That could be the incentive that they would need, rather than going off to another clinic or another practice environment to try to earn some additional income- Right ... and instead earn it, uh, in their primary place of employment.
Larry: Yeah, it's interesting. In fact, I've seen also variable components Because they weren't set up based on compensation, they were set up based on visits. So to use your example, if you have a, if you understand what your average daily production is for a therapist- Yeah ... you could tier it so that their side hustle is anything above it, they get paid a higher percentage.
Jason: That's right.
Larry: Okay. And that would be a very rational way to incentivize them to work more beyond their average daily production. You could even, in theory, keep them at a salary, but tie it to average daily production anything above that. What I see happening though is they tie it to visits.
Jason: Yes.
Larry: Well, what happens under a visit constraint is it could be win-lose.
Jason: Yeah.
Larry: Because a visit could be a home exercise program, it could be a Medicare patient where you're trapped by the eight-minute rule or the rule of eights if it's an Anthem patient, right? Yeah. Just by way of example. And so tax and payment [00:43:30] have implications in life. Mm-hmm. Tax is life. I said that earlier in one of the podcasts.
It's true for compensation as well. Yeah. But side hustles should be, they post on social media so that people come visit them in the clinic. You wanna incentivize them to have their side hustle as an entrepreneur within your own clinic.
Jason: Yeah. Yeah. Yeah, that's absolutely true, and I think what you also wanna do is position your comp model where the side hustle that they have that's bringing additional patients into the clinic is likely to result in in- increased compensation for the entirety of the work they did in that given week.
100%. Because in that case, the patient that's running late on Friday who calls and says, "I'm gonna be 15 minutes late. Can I still come in?"
Larry: Is it-
Jason: If the compensation for that particular patient is tied just to that patient, there's still the likelihood that the therapist will say, "You know what, Mrs. Jones?
Just come in next week, do your exercises, and I'll see you next week."
Larry: Yeah.
Jason: But if seeing that final patient at the end of the week is likely to result in increased compensation for the totality of the work that the therapist has done for that entire week, now it shines a light on how important it is.
We should be doing this anyway, by the way, clinically, as you and I both know. Right. Yeah. We should be letting that person come in, especially if that was prescribed care. If we prescribe three times a week and that's the third visit, we should be standing by that. There's a reason why we prescribed that.
Larry: Yeah.
Jason: But there's also an economic benefit to that. So there's [00:45:00] that, and I wanna point out something else as well. I get the question a lot If it were you, meaning me, what comp model would you offer at my company? Um, and so I think it's important for me to, to comment on that. I am a big proponent of a variable comp model that's tied to revenue share.
I think that needs to be the gold standard of where we're headed.
Larry: Mm-hmm.
Jason: We do have a lot of practices that introduced visit-based models, and we've talked about that. You mentioned it just a few minutes ago. A visit-based model is an option. It certainly is. If we're doing a visit-based model where some of the comp is variable, I think it's a step in the right direction.
Larry: Mm-hmm.
Jason: But I also think there are fundamental challenges there because a visit is not a visit. Visits have different values.
Larry: Right.
Jason: Also, if somebody sees a visit and bills one unit, according to the comp model, that's a visit.
Larry: Right.
Jason: And if the comp model says you get paid X number of dollars per visit, regardless of the value of that visit, you as the employer are holding significant risk here.
Larry: Yeah.
Jason: What we're ultimately trying to do is to create a true win-win situation- Mm-hmm ... where the employee and the employer are rowing together. They're looking at the same things. They're moving in the same direction. Their lens is the same. From my experience in doing this over the last 12 years, the only time that happens is with a revenue share
Larry: model.
Yeah, I agree. I think the other thing you have to do is what we say in psychology, the counterfactual. [00:46:30] So if you put in place a variable or fully variable comp model, what data are you tracking? You're tracking customer acquisition costs because my therapists lower that cost, and that cost in our marketing is 3% or 4%.
I'd rather pay my therapist 2% or 3%, and I get to keep the other percentage. If I'm spending a significant amount in recruitment and talent acquisition, guess what? I'd rather pay my therapist more. I'd rather pay my therapist more than have a regional director coddling them for the color of their carpet and the cleanliness of their location.
All of this cost and monitoring costs Don't go completely away, but there's enough money and flow in the system to reward your therapist. That's the counterfactual, and you're looking at average daily production. You're looking at doctor days. You're looking at schedules.
Jason: Yeah.
Larry: And you're creating an environment where your therapists have autonomy, mastery, purpose, have the ability to up-skill.
Three units of, of, uh, manual therapy are a whole lot better than one unit of a modality, or three units of a modality just by way of contrast. And so it forces up-skilling, and your quality of therapy, your litmus test is no longer your third-party patient satisfaction test. Your litmus test is how many patients are trying to come into your clinic-
Jason: Yeah
Larry: because your rockstar therapist is attracting them. And so one of the other data points is the percentage of patients that come into your clinic that are friends, family, or former patients.
Jason: Mm-hmm.
Larry: When that number gets 30, 40, [00:48:00] 50% and you're not paying your therapist a variable comp model, you're really penalizing them.
Jason: Yes.
Larry: The-
Jason: Yeah ...
Larry: last, uh, let's do kind of a last comment- Sure ... the two out of us, and this has just been a tremendous, uh, you know, series of podcasts on this topic that I think we've beaten to death. Hopefully we have. I know we're gonna do a s- a webinar as well and get real tactile and real, real practical on how we implement these kind of things.
Um, but last thoughts, things we didn't cover.
Jason: Yeah, I think my last thought would be, um, as I said earlier- I don't know that I've ever run across a, a practice owner who thinks that a variable comp model or a revenue share model is a bad idea. I run across weekly-
Larry: Mm-hmm ...
Jason: practice owners who, for those three reasons that I described earlier, are not doing it currently.
They either don't know how to structure it, they don't have the time to do so, or they're afraid of the adoption rate. What I would say is it's not going to get any easier to introduce these models. So my question to our listeners and to our viewers is, what are you waiting for? You know that you have to go in this direction, and now is as good a time as any to do that.
We've laid out a lot of options in terms of what that could look like, but this is something there's a lot of traction, there's a lot of, uh, communication and conversation that's occurring at conferences about this very topic. And also what I would suggest you do is reach out to a [00:49:30] practice owner who is doing this.
Reach out to one. Find one where it failed. That's, I think that's equally as important as finding one where it succeeded, and ask them what did they do, what did they not do, what did they wish they had done differently. That's a great place to start, and that would be my advice to our listeners.
Larry: Yeah. And I, my last comment would be really that this issue to me is existential.
The data suggests that we are, you know, 25 to 30,000 therapists light in terms of shortage. The data also would suggest that we're increasing that by 3 to 5,000 every year despite graduating more new PTs. The data suggests that 20 to 25% of our clinicians are actually seeing patients full-time, licensed PTs.
So to me, it's existential. If we don't change the model, can we really have a practice that has a viable margin to stay in business? Do we want to be a doctoring profession where our rock stars are our therapists and we have business support functions that work with them, or do we want to ride this thing to its death and be conflated of what really hands-on physical therapy is?
Because you have the YouTubers and you have the digital, uh, groups, which we won't mention by name, all who are giving people the impression that that's physical therapy. My favorite quote in, in the PT world came many years ago, uh, to our CEO at the time of Evidence in Motion, and he said, "I used to think I knew what a PT was, then I started working in your industry.
Now I'm completely lost as [00:51:00] to what a PT is." And that's what's happened to us. Yeah. Think of the differentiation if you have a doctoring profession of hands-on caregivers who incentivize and pay to stay in a clinical pathway where they're rewarded both financially and through what their image was of a PT when they signed up for this, versus what we have now.
Yeah. And I do believe we can, we, we can do this. I think business owners could benefit and have a more thriving, sustainable, long-term competitive advantage by moving to a variable comp model in its various flavors that we have, uh, drawn out here over the three podcasts.
Jason: Yeah. Yeah. I agree. Well, thank you so much, Larry, for being part of this.
I enjoyed it. It's important information, and I'm glad we were able to talk about it in depth.
Larry: Well, thanks. It's been a pleasure, and, uh, we look forward to furthering the conversation.
Jason: Likewise. Yeah.