Good morning everyone. Welcome to this episode of the Private Practice Business Academy. On the phone with us today is an amazing partnership and dynamic duo of John Knutson and J W Matheson. Only one is a physical therapist and the other is a graphic artist by trade. We’re going to dive into this topic of how partnerships work together and how this partnership has catapulted this practice into the next level. Guys, it’s great to have you on the phone this morning. I want to let the audience know that we are on hotel Wi-Fi because I’m traveling again doing a site visit. I am at the mercy of the Hilton Wi-Fi. It’s great to have you both of you on today. Do me a favor and introduce yourselves to the audience. Let’s get the show going.
John Knutson: Hey, how you doing? I’m John Knutson. I’m a CEO here at Catalyst Sports Medicine.
JW Matheson: Good morning. I’m JW Matheson. I’m the clinic director here at Catalyst Sports Medicine.
Joe: Great guys. What we’re going to start off with is what made . . . Obviously both of you are friends, hopefully you were friends in the beginning. What brought this partnership together?
John: JW said “Would you be able to talk to my staff about the challenges of growth in a small business”? I said I’d be happy to do that. After doing that, the timing with my sale of the company to my business partner at the time, When we started working together it was under a mutual friend, the former business owner, a gentleman by the name of Rich Larsen with Larsen Sports Medicine and Physical Therapy. Rich was a growing practice and needed a little help in the way of business development, marketing and promotion, personnel, administration, and a few other areas. I’ve known Rich for six years. Formerly, I ran a printing company where I was a designing, printing, and warehousing fulfillment company. We were a pretty good size. We had a hundred and five employees and eighty thousand square feet. I sold my interest in that printing company in 2011. That’s when Rich came to me and Rich wanted me again, to do this seminar for his employees. I did that. It went well. Therefore, he said, “Why don’t you come to work at our physical therapy practice”? He wanted to focus more on the hands-on clinicians side of the business, but did need help in the business administration side. He wanted to make me general manager. I did tell him, “If we’re going to get married, let’s date first and see how this goes because I don’t have a clinical background.” Quite honestly, I was apprehensive to go from thirty years in the graphic arts running some moderately successful businesses, into the medical field. When I came here, it did become obvious they had all of the clinical side handled quite well, especially with JW as the clinic director. I was able to focus on marketing, promotion, branding, and business development. Also, on the expense side of things, the profit and loss and the administration, and that’s where we’ve made the most significant gains in the last two years. I ended up working with Rich. As of January 1st, 2012, we did agree that I’d be the general manager in a more permanent role. We worked the entire year together and did quite well. At the end of 2012, Rich Larsen had an opportunity to take a position with Mayo Clinic in Rochester. One of the conditions of that acceptance was that he sell his practice. JW as the clinic director here and myself as the general manager, got together. Between December 25th, 2012 and New Year’s, we put the deal together to buy the practice. We’ve owned it for a year now. We’re continuing to grow.
Joe: Certainly a great story. That’s an amazing story. In one way, if you look at it, you had a warm up period. It wasn’t an idea that sparked and said, “Hey buddy, let’s start of practice together.” You had some time together working in the trenches. Then the good fortune towards both of you was the fact that your buddy had a better job offer given to him. He had to give up his practice. Was it an easy transition? Was there some difficulties involved?
JW: It went as smoothly as it could for happening so fast. The dilemma was the holidays and the timing of the deal. It became apparent quickly that John and I work well together. Being able to recognize your strengths and weaknesses . . . I certainly don’t have the business background that John does. He doesn’t have my clinical background. Like you mentioned, it was a nice symbiotic partnership that developed quickly. Our decision-making was easy. The dilemmas of getting the deal done that fact was difficult at times.
Joe: That’s a great point you brought up, recognizing the strengths and weaknesses of each other. I’m going to share a little bit of my own. I own a few practices outright, but I also partner in a couple of practices. My challenge is being . . . Basically, I am a clinician as well, but I don’t treat anymore . . . I handle more of the business side of everything as John does these days. My challenge is working with clinical directors that have zero business background . . . Marketing, sales, general business background . . . That’s my pet peeve or challenge. In the last two years I’ve learned to stop micromanaging. John this is more directed towards you and JW has admitted that he doesn’t have the big business background, but he has that clinical background. How do you deal with that. There’s times when you two must come at each other and say, “OK. Look. This is the right way.” If JW is pushing back a little bit, how do you reason this out?
John: That’s a good question. I would tell you first and foremost that it was pretty easy to put our partnership together because . . . I would’ve had zero interest in buying this practice had it not been an equal and 50-50 partnership with JW. The first agreement that we made is JW, when push comes to shove, you make all the clinical decisions. When push comes to shove, I make all the administrative decisions. That’s the way we operate. That doesn’t mean we don’t negotiate back and forth. I’ll express my opinions and ask questions. My limitations is not having been in the healthcare field so I’m constantly coming to JW and asking questions. On the other hand, we both found that it was a little bit refreshing to have somebody come in from the nonmedical bias. There isn’t a day goes by that I don’t look at JW and say, “Seriously? That’s how you do it in this field?”
John: My experience in business is that we do things literally [Internet interference] I apologize to all the clinicians out there, but in the medical [Internet interference] it’s not always done by common sense. A lot of times, it’s done by process and procedure because that’s always the way it’s been done. It’s a little unusual. One of the things I’ll give you an example on . . . Of us working well together . . . When I came on board . . . Again, the practice was owned formally by Rich Larsen. With all due respect to Rich, he was a tremendous clinician, but he was a young businessman who is learning. I can tell you that the former practice had a labor cost to percentage of revenue of about seventy-six percent.
John: Today we sit here and our labor cost to revenue is thirty-six percent. That’s a huge difference to the bottom line. You’ve got to be able to recognize those opportunities. The biggest expense in any business is going to be labor. It’s not your building. It’s not your supplies. It’s not your program costs. It will always be the labor. We always say here, “You get what you focus on.” We put a good focus on labor. We offer incentives and programs for clinicians to be more efficient. We want our clinicians to be ninety-eight percent billable for their time. In order to do that, we have to have administrative staff that supports the clinicians properly. With our admin staff and PT assistants and PT aides, we do those types of things. We let our horses run. We let the breadwinners make money for the organization. I think we do a pretty good job of that.
Joe: Some excellent points. JW, this is going to be directed at you, especially about the incentives for clinicians. You went from being a staff member or director to now an owner. I’m assuming the transition of that was hopefully smooth because I’ve seen some transitions become a little bit rough. Let’s talk about that first, but then I want to tackle the incentives for the clinicians. During your meetings with your staffs, how do you bring this up? I know a lot of physicians, therapists, and other healthcare practitioners . . . The incentives portion is good, but they don’t tackle it as well. How do you explain this to your staff?
JW: That’s a great question. I come from a very research-based background. I like lots of data and numbers. We try to present with that. I think John does, too, as far as the business metrics. We tried to be as transparent as possible at the staff meetings. We’ve had students and PT’s come in and that’s one of their first comments, “You share these numbers with us. I’ve never seen it this way.” I want to make sure I answer your question, but a good example is not necessarily an incentive, but it will allow for money for raises. This is how it was posted to the clinicians. John was paying all these bills for dexamethasone and iontophoresis supplies. He came to me and goes, “I keep paying these. How often do we use this? How much are we making on this? Is it billable? Are we getting any return on this?” I said, “I think we’re overusing it from a research perspective. “I sat down and we wrote a clinical policy that was based on the evidence and said, “Use this four to six treatments Max. You should only use it where it’s going to penetrate a centimeter.” We wrote up some guidelines that no one had any problems with. But because we watched it and monitored it, now at our monthly staff meeting, we present how often it was used the past month. If it seems to be creeping up, we talk about it. Is it warranted or unwarranted practice variation. Over this year we’ve saved at least $5,000 and that’s presented to the clinicians. They understand that that’s a potential raise and it’s things like this that we have to do to make money in the clinic and decrease unwarranted practice variation. As far as incentives, we look at outcomes per clinician. We have lots of data. Presenting that data to the clinicians, if you do in a nonthreatening way, they understand that’s how you run the business.
John: We don’t share personal wages and things like that. We aren’t a hundred percent open book management. We do share the generality of profit and loss with them. The staff, in the one year that we’ve owned this clinic, have really understood. They went two years prior without raises or promotions. There were not incentives. We’ve been able to do some nice things. The practice is only seven years old now. In this last year, we’ve been able to implement the professional 401(k) retirement plan for the staff, where we started out by putting a dollar amount in for all employees and we will provide a match. That’s never been done before. We’ve got significant raises. We do annual reviews. We do the reviews on time which have never been done before. The staff gets perks and bonuses where we do company lunches and company outings. For Christmas we bought nice jackets for everybody that are branded, from my marketing background. When we give things to the employees, too, I want them to be dual- purpose and to be branding for the company as well, if we can. It’s a gift that’s well received that does help us ultimately too. We’re doing enough things in business to make change. The one thing I always tell our staff is, “We don’t need to change anything a hundred percent. We want to take a hundred things and change them each one percent and that will transform the organization.”
Joe: That is why I love what both of you bring in to the conversation. When JW brought up the topic of how you brought the clinical data to the staff where now the staff would understand why not to use their iontophoresis or dexamethasone as much. If John brought it up, they would say, “John’s just being cheap. John doesn’t understand about this. John’s just being cheap about this and he doesn’t want to spend money . . .”
John: Wait a minute. Hey, Joe, has the staff been talking to you?
Joe: I’ve dealt with a lot of staff members, John, all over the country. I’m going to tell you that it’s amazing what I hear and see when they don’t know that I am the consultant. It’s amazing with staff. I understand. I was a staff member at one point my life. I thought the same way. Until you are on the other side of the fence, it’s hard to see the other side. It’s a good thing that you guys have such an open policy that everyone sees and understands. It’s an education factor that you’re bringing on board as well, which is absolutely amazing. Let’s go back to how you brought that labor to cost revenue down from 70 to 30 percent. That caught my interest. It depends on which state you’re in because sometimes if you’re in the bigger cities the biggest nut you have to break is your rent and your staff. If you’re in a different city where the rent is not so high then it basically is your staff. How did you bring that cost down? That’s a solid 40 percent, John. That’s a round of applause on my end to you, by the way, because that’s quite amazing.
John: It’s never just one thing. Even in the case of labor, when we break that down, it’s a hundred different things. One of the things that surprised me, in the time that I was general manager under the former owner there would be three or four administrative staff at the front counter and only one or two clinicians in the back. One of the things we did right from the start is we said, “The proper ratio for administrative staff to clinicians is a half of admin to one clinician.” In other words, if we’ve got four clinicians in the back, two staff up front would be appropriate.” Another thing that we did, we took a look at our hours and arranged our scheduling so that we were much more efficient with our clinician. Other things we look at constantly, are cancellations and no-shows, and how can we improve them to where we’re generating revenue while the staff is here. One of the problems that they had in the past, the cancellation a no-show rates were so high, but you have that expense for the employee so you are paying your clinicians . . . We pay our clinicians above average. When you’re paying that rate per hour and there’s no revenue coming in, as much as anything, that accounts for the efficiency problem. Literally it would take me all day to give you thirty-five different things that we did on labor. The whole point there, Joe, would be any clinic could get together with administration and staff and say, “What could we do to be more efficient?” That’s what we’ve done here. We’ve invited the input from the staff. Staff wants to be efficient. People don’t do things for two reasons. They either don’t know how or they don’t want to. To be honest with you, we’re like everybody else, Joe, some of our employees should be someone else’s. We’ve had to make some of those hard decisions and hard changes. There’s a book called “The Energy Bus “. The whole theory is get the right people on the bus and then the second thing is make sure the people are in the right seats on the bus. We’ve done pretty well at that too.
Joe: That’s a great book. We’re going to make sure I leave a link for that at the end of the podcast to that book. A great point as well, I find a lot of clinicians . . . The one I’m actually working with right now has a the front desk associate that should not be at this position. It’s a tough sell because it’s a friend of the owner. It goes back and forth. Somebody coming from the outside in, it’s very easy for me to say,” You can fire this person. She’s useless.” When it’s the owner’s best friend, it’s tough. You brought up some great points. It’s not just one thing that you did. It’s a couple of things. I’m not sure about the admin . . . Half of admin to one clinician. That’s a risky move depending on the amount of work that’s generated for that . . . If the admin is handling the billing as well or just scheduling. It all depends I guess.
John: Yeah. I’m talking about front counter . . . We call PCC’s for patient care coordinators. We show medical billing for us as separate. Administrative payables and receivables, we have accounting people do that. I’m literally just talking about the front counter. Joe: OK. Then that is a great ratio, for everyone that’s listening, to swipe and use, themselves. Half of an admin to every clinician that you have working . . . That’s an excellent target point to work with.
John: The other thing that we do is make sure that in every position in our clinic here, we have a primary, a backup, and a third. When someone at the front counter . . . They’re supposed to be two PCCs, Patient Care Coordinators upfront and one calls in sick, our medical biller automatically falls into the number two position of support and answers the telephone, schedules, and manages cancellations and things like that. Literally JW can do everything in the shop. JW’s one of our best Patient Care Coordinators. If he needed to be at the front counter, he handles everything with our hands-on therapy software that we operate . . . Great IT guy and handles all of the administration with our FOTO data. That’s something JW can get in to talk to you about with our quality metrics of outcomes is something that really sets us apart from other clinics. Having a primary, a backup, and a third in each position, gives you the depth you need without over staffing in any one area.
Joe: Absolutely. That’s so important, what you just said. You just mentioned about the quality of metrics that separates you from other clinics. Let’s dive into that little bit, JW. I understand what quality metrics is, but how do you use that as something that you can explain to the patient and explained to the staff?
JW: Perfect. Since 2005, I’ve been working with FOTO, Focus On Therapeutic Outcomes. Right now, any patient that comes into our clinic, fills out their evaluation paperwork on an iPad or they’ve downloaded it off the website and they have it filled out. . . Before they see their therapist, they fill out a patient inquiry web-based questionnaire that’s dealing with functional risk-adjusted questions. It prints out right away on the printer, the therapist, who is roaming the patient, has the printout in front of them. Right now, it’s based on ten criteria. It risk adjusts. It says based on the fact that you’re a fifty-five-year-old female with low back pain, has low fear avoidance, is a preferred provider insurance, previous back surgery, has two comorbidities, we expect twenty points to change over the next eleven visits over fifty days. We have a goal to shoot for. The therapist discusses that with the patient, goes over the goals that were generated [Internet interference], set some goals. Then now it has some metrics that they try to beat, they try to create more functional change per visit than is predicted. We used that model with one of our payers in a pay for performance model. Last week we found out that we got an $11 raise this year per visit. We’ve made some incremental substantial gains with this payer because we have data to bring to the table. At least on their first visit and their last visit we’re collecting data from the patient. The therapist is integrating that in to each visit. I can review that data with each therapist. I can look at our clinic data. Then I take our clinic data to our payer and say, “Not only am I telling you we do better than the rest, I have the data to prove it. We qualify for more.” We’re doing a better job. We’re getting your patients better, faster, and we’re more efficient. I have the data to do that. I get reports quarterly that I review with each clinician. Right now, I’m more concerned with data collection. If I have a therapist that’s doing poorly in one area . . . say cervical spine because it’s divided up into body parts . . . I might direct that student, “Hey, Scott. Do you need to go to another shoulder course? Your shoulder scores are fantastic. You’re not doing well on the neck. Let’s get you to a neck con Ed course.” I try to hold the whole clinic to data collection. That’s the front desk. They’re responsible for getting that first data set. Then the clinician is responsible for getting the follow-up. We depend on those data metrics from FOTO to monitor our functional outcomes and give us some data we can take to payers, and also internally look at.
Joe: That’s amazing that the $11 dollar increase per visit, happened, especially when a payer agrees on that. Once you sign a contract, I’ve rarely seen them change a contract to pay higher. Sure to pay lower, but not to go higher. What was that piece of software called again? It was called FOTO.
JW: Yes. It’s Focus On Therapeutic Outcomes. It’s a national proprietary database that’s been around since 1993. It’s now web-based. There’s about eighty-five research articles on the tool. From my concern, we need a validated tool to compare clinicians. It’s allowed us to make some incremental gains in today’s healthcare market which is extremely hard.
Joe: John, let me bring this to you. How have you used this in a marketing and positioning standpoint with the clinic?
John: Yeah. Thank you. I want to clarify, too, FOTO is F-O-T-O for Focus On Therapeutic Outcomes again. Every time, when we say FOTO, people think of photographs, but Focus On Therapeutic Outcomes . . . The FOTO program . . . I’m a marketing and promotions guy, so when we can sit down with a third-party payer administrator and say listen, “We can save you a lot of money because we get our patients that have your insurance, better faster which ultimately saves you money. It would be beneficial for you to keep us efficient and on the top of our games because it’s our goal to be your best supplier.” It’s an easy sell when we show them the data. This is data that’s compared nationally, so, as JW said, it’s risk-adjusted and everything else. They usually understand that. FOTO is an outstanding tool to help us market our company to prove that we’re as good as we say we are. In some areas, we’re in the top two percent in the country in the treatment of low back pain. Our average scores were ninety-two percent when you take all body parts together. Whenever we go to a third-party payer and we talk about negotiating our contract and say we are in the top ten percent of all providers in the country for these . . . It opens their ears. They’re more willing to talk to us. In fact, they wish all of their clinics would be in those ranges. It’s a good tool for us to help negotiate.
Joe: When did you guys bring this on board to your practice?
JW: When I joined the practice, I was in a private practice that was billing . . . Six private practices which I worked for one of them . . . All bill under the same managed service organization. Part of my job was to implement this FOTO tool, the functional outcome tool, amongst the twenty-two clinics, amongst the six practices. When I left to join Rich because I wanted to promote private practice . . . I had more growth opportunities and I was looking for a change . . . I brought the tool with me. I saw what Rich was getting paid by this payer in our market and it was substantially less than we were getting paid at the previous private practice that I worked at. I said, “We’ve got to get on this. We’ve got to see incremental gains.” From 2011 when we fully implemented it with the payer to 2016 projected, we’ve made up that ground. It’s around $40 a visit between 2011 and what we’re projected in 2016, if we maintain our outcomes.
Joe: This is all for contracted in network providers, correct?
John: Correct. We collect data on every patient from every payer. Right now we have the pay for performance model with the one payer that’s about twenty-eight percent, thirty percent of our payer mix.
Joe: Great information, guys. I just checked out the website. It’s actually FOTO Inc dot com. They have great information on there. Anybody that’s listening if you’re looking into a product that will help with outcomes. If you have in network contracts that you’re looking to help renegotiate, this is something that could do it. Especially when you talk about $11 increase per visit. The numbers are amazing when you look at that quarterly and yearly. Some other topics I want to hit before we have to run. Obviously John’s been on board for a while, but how does the staff, in general, handle the fact that you have two different owners with two different strengths? Do you ever get the double- sided . . . Where one person likes one owner and doesn’t like the other one or do you fire that person?
John: They all like me, but I’m working on getting them to start liking JW better.
John: In all seriousness, it’s like the marriage thing and the kids know how to play the parents at times. The key, just like a marriage, is that JW and I agree on what the ownership decision is going to be and it doesn’t matter who they come to for that type of question then. What works well is leaving all the control and clinical issues to JW, and leaving all the control on the administrative issues to me. The staff has learned in the year . . . It’s a Pavlov’s dog thing, they understand that if they do things right, they get something. We’ve always said here, “Economics are pretty simple. If there’s a profit, we might be able to share that with you. If there’s no profit, there’s no possibility of advancement or gains.” The staff needs to understand the economics of a business. I, unfortunately, find in the medical field, the medical practice, is often times with clinical owners, they aren’t willing to share information with their staff. I’m not sure why. It’s just what I’ve seen. We found it’s been very helpful that we’re all on the same page. I use the phrase, “We want to get all the fish swimming in the same direction in the stream.” When we do that it makes quite simple.
Joe: Absolutely. That’s a great point. I have seen that as well. I’ve seen that the owners do not want to share the fact of what the pulling in. I do have some owners that don’t even drive their real cars to the clinic. They drive their second cars to the clinic.
John: JW does that. He leaves his Lamborghini at home, he drives a Dodge truck to work.
Joe: JW that’s fine. The Lamborghini shouldn’t be out in the cold weather anyway.
JW: It doesn’t do well at -20.
Joe: It doesn’t do so well in the snow.
John: Opening doors are tough in the cold.
Joe: As we joke about that, I’ve seen that. Do I know why they do it? I don’t know why. Sometimes they’re afraid the staff will be jealous and ask for more money immediately. I guess this is a great lesson that we just shared with the audience that being a little more open with the staff will really help them see where you’re at. If you’re struggling and the staff sees that this is what we need to do . . . If they’re staff that’s going to help you grow, I guess they’re going to stick on board and really work harder. Obviously, if they’re going to jump ship, they will jump ship immediately. Quick question though, have you had staff that has broken away and started their own practice?
John: That’s an interesting question. On your last comment about sharing information, one of our phrases these guys know here too, “Share the wealth, share the pain.” As long as you’re honest with them, they will believe what you tell them, if they have a reason to believe. You’ve got to give them reason to believe. I’ve seen so many owners say, “We’re broke, we need to do pay cuts.” And then they drive into the parking lot with a new BMW or learn about the sailboat at the lake. That’s where you get the distrust. When we do as many things as we do with our staff, they know we’re being upfront with them. If we tell them, for instance, January and February are historically lower months for billing and right now in the Midwest we’ve had horrifically cold weather and the cancellation rates have been skyrocketing. What our staff been doing, they’ve been doing everything they can with the waiting list and getting those appointments rescheduled. They’ve been doing everything they can to help us keep those clinicians busy which turns into revenue which turns into potential opportunities for them later. They could say, “I get my salary whether I fill that spot or whether I don’t.”
The good news is they believe in what we sold enough to be able to say, “I know it’s better for me if I fill that open spot, so I’m going to do what I can.” We like that. To your second point there, have we lost anybody? We’re losing right now. In the last couple of days, we’ve learned that our director of physical therapy, a great young clinician whose been here five years has been courted by a local hospital to direct their speech, occupational, and physical therapy departments. It’s a tremendous opportunity for him. One of our philosophies with our staff that we openly tell them is, “Don’t ever apologize for bettering yourself. We would do it as owners. You should do that as an employee.” Out of respect, we do like to know and understand if you’ve got opportunities because in some cases we can help you with those opportunities. That’s what we did here. The director of therapy came to us and said, “This hospital is courting me for this position.” We talked with the CEO of the hospitals and worked it out because it was beneficial for this kid.
Granted, we aren’t happy that we’re losing him, but one of the things in thirty years of business for me that I’ve found is every time you give somebody a hand up, it always come back to help you even more later. It will be a little bit of a hassle replacing him at this point, but we’re happy for him. To have a guy take a substantial increase in salary and get a promotion to be able to be a director of a hospital’s therapy departments, plural, is a great opportunity for him. We do talk to our staff constantly and say, “If you guys get opportunities, let us know what they are. Maybe we can help you with them or at least give you advice.” What we don’t like is people coming and surprising saying, “I’m leaving on Friday.” We’ve been able to minimize that. It’s worked pretty well.
Joe: That’s a great take away right there. The, “Hey. I’m leaving on Friday.” We’ve all experienced it. It touches home for a lot. I love one of the lines that you said, I’m going to make sure that I put that as a quote for you on this episode. Don’t ever apologize for bettering yourself, but out of respect just let us know. That’s a great take away for clinicians to present to their staff. It’s very professional, a very quality approach to it. Guys, I’m running out of time, you’re running out of time. It was great speaking to both of you. You bring so much to the table. Out of a partnership, I think this couldn’t have worked any better bringing two different experiences to the table. We get a lot of questions about people asking about if they should take on a partner. What qualities they should look for. I think this is something that you two have brought so much experience to this arena.
John: You make sure they ask their partner if they do have a Lamborghini. You do want to know those things going into it.
Joe: make sure that Lamborghini can drive in the snow. Pleasure speaking to you today. This was great stuff. Is there anything else you guys want to touch base on really quick before we have to get going.
John: No. I think we’re good to go. Appreciate the opportunity Joe.
JW: Thanks, Joe.
Joe: JW, John, thank you so much guys. Once again thank you for listening to this episode of the Private Practice Business Academy and I’ll see you soon.