"It's ten minutes past eleven at night...Where is Peter?" Alicia asked herself as she woke up from dozing in front of the TV with their daughter, Jessica. She was pleased to hear the sounds of an unlocking door and Peter walking in. He looked exhausted but was happy to carry Jessica to bed. After all, it was a Saturday and he should have had the day off.
Alicia was proud or her husband. He worked tirelessly without counting hours, evenings and weekends, so that he could accomplish his goal of owning his own practice and giving Alicia the freedom to dedicate herself to raising their two children and continue pursuing her MBA.
Peter opened his practice two years ago and built his business from the ground up. Referrals were growing rapidly and he was now seeing 100 patient visits per week. He recently hired a PTA in addition to his administrative staff to help him with his growing case load. His passion was treating patients but his current priority was building his practice. Peter was telling Alicia that in a year or two, he could pull in more than $600,000 a year, perhaps making $6,000,000 over ten years.
"Pete, Jessica was really upset that you missed her soccer game again. All of the other Dads were there." Alicia said disapprovingly. Peter worked every evening and weekend over the past 3 months. "I don't understand why you spend every night and weekend in the office," she said. "Isn't your staff supposed to be doing most of this work while you are treating? Do they stay late to help you?" she asked.
"I really don't need this extra stress right now," he replied. "I can't pay them overtime to help, and I really can't sit there and watch what they're doing all day."
"You know, Peter," pressed on Alicia, "It's clear to me that you're not managing your staff properly."
Peter felt like he was punched in the stomach. He wasn't going to challenge Alicia. For the past two years, she managed to take care of Jessica while pursuing her MBA. Peter started getting a headache.
"You are heads down all day treating patients and not paying attention to what is going on with your staff." she added. "Last month, you had to replace both your front office person and two months ago, you replaced your biller."
"You're paying your administrative staff $12 and hour and you just hired a PTA for $45,000 a year but you're doing most of the work anyway." Alicia continued, getting more agitated. "You have to be losing money because of the turnover and salaries and on top of that, you're never home anymore. If you are going to see 100 patients a week and then spend every night and weekend doing business administration, why have staff at all?" Alicia asked.
"Good question, I don't know" Peter reluctantly replied.
"Katherine called the other day." Alicia said.
Peter went to college with Katherine. They graduated together and were good friends. Katherine opened her practice 4 years ago and was in the process of opening her fourth location. She was averaging 800 visits a week.
"We didn't speak for long because she was about to take her golfing lesson but in the few minutes we spoke, I thought of an idea," said Alicia.
"I couldn't even consider taking a day off to golf," thought Peter to himself. "OK Alicia, what did you come up with?" Peter relented.
"You know, she pays her staff based on performance. Let's start with some facts. Employee salaries vary in three ways: type of service, years of experience, and location.
There are four kinds of basic compensation: hourly, monthly, base salary plus performance bonus, and profit sharing or pure commission," said Alicia, handing the table to Peter. "Employee compensation is a cost of doing business. If you had no employees, you would eliminate that cost but if you spend time greeting patients and chasing insurance claims, you have no time to treat patient and manage referral relationships. So to grow, you need help. "
"So, you hire staff to treat patients, to greet them and schedule their visits, and to chase insurance payments. The problem is motivation. Can you tell me what are the costs of unmotivated front office staff?"
"Well, Alicia," said Peter, "A careless front office person might get patients upset, forget to collect co-pays, not follow up on a missed appointment. They could also get other office staff upset because they would not work together as a team. The cost of unmotivated front office person could be increased patient attrition, impact cash-flow, and the bottom line ultimately. The cost of an unmotivated hire is much more expensive than a few more dollars per hour..."
"So, Alicia," Peter sparked up in spite of the late hour, "Should we look for more qualified front office staff and pay $15, or maybe, $18 per hour?"
"Not so fast." said Alicia. "If you pay more per hour, you will reduce turnover because fewer practices around will compete with your compensation, but you will still have the same motivation problems, regardless if you pay $12 or $20 per hour. Tell me, what's the problem with paying hourly wages to staff that needs people interaction skills? What is the ultimate goal that your font office staff must meet?"
"I get it now!" Peter didn't notice his voice rising. "The front office staff is responsible for patient loyalty and referrals. Working with people requires attention to detail and interest in their problems. Especially when you work with injured or sick people. It's hard work, people feel burnt out. So, compensation and incentives must acknowledge their results, such as new referrals, fewer missed appointments, fewer missed co-pays. I could structure the front office salary so that they get minimal pay for standard work and a percentage of collections to give them incentive to grow referrals and keep patients compliant with their plan of care. Since more referrals, fewer missed appointments, efficient collection of cop-pays and balances increases collections, they could work more and make more than the best paid staff around!
"Right," said Alicia, "and not every person will be ready for this kind of compensation. But that's OK too: why waste time hiring a wrong person for the job and then discovering that they lack the skills and motivation to do the hard work?"
"So, what about the PTA? Should I also pay him a bonus? but for what?" asked Peter.
"Sure, you do not want to pay him for idle hours during no-shows, and you do want to pay him proportionally to the number of patients he sees and for better plans of care. That's called profit sharing," said Alicia.
"...or commission," continued Peter her thought. "OK, I get it - commission and bonus helps people focus on the result of their work and not on its difficulty. The compensation structure helps motivating my staff and improve teamwork, avoiding problems and contributing more to my bottom line."
"So, why don't we move all of my staff on commission?" asked Peter.
"That's the right business approach," responded Alicia, "except most people do not have self-confidence and productivity to work on pure commission. For instance, would your biller agree to work on 100% commission of your insurance collections? Most likely, she wouldn't, because she needs to pay her mortgage and other fixed costs and she cannot make her income dependent on your patient flow and the insurance companies. She expects a steady check regardless of your revenue, which depends on her performance. Actually, do you have ways to measure her performance? If you discovered under-performance, what would you do?"
"Today, I pay her regardless of her or my practice performance. That's not a healthy relationship," lamented Peter, "It's hurting the business."
"The good news is that, like Katherine's office, there are companies that work on commission-only arrangement," said Alicia, "outsourcing your billing would make more sense because a specialized billing company would have processes to manage their employee performance, including correct incentive methods. Actually, if you talk to an outsourcing company, always ask them how do they compensate their employees? Are they all on commission? If not, then you will end up with the same problem with even less control."
"Actually, no matter how big or small my practice is, all of its parts must work together to succeed. If administrative staff allows too many cancellations and doesn't help with referrals, patient visits will suffer and the revenue will decline," said Peter.
"A Pay-for-Performance pay scale rewards the staff who produce and penalizes those who don't. As a practice owner, I am always on Pay-for-Performance pay scale. You pay yourself less when the company's revenue is down. Why shouldn't the staff's income be on the same path? Tomorrow, I will change my compensation setup for my employees," Peter sounded really excited.
"Slow down, Peter," said Alicia. "Before you make any changes, review them with a Human Resource and Compliance specialist to get sound advice," warned Alicia. "We don't need a lawsuit because we missed a legal requirement to make the changes we want."
What do you think? Is Alicia right in her reasoning?
Do you know of a PT-specific staffing system that could make Alicia's and Peter's dreams come true?
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