How my success almost killed me

In 2005, I purchased a failing medical practice. A friend had started the business a year before with another physical therapist. They both knew a lot about providing therapy services but nothing about running a business or medical practice. They were desperate. They hadn’t made any money at all. They had mounting bills, and complaining wives. I saw it as the perfect formula for me to get into the therapy private practice business with the least amount of cost, work, or time. 

Me, trying to look professional.

What I did not know was that this purchase would almost result in my own death. Before I get to that, let me explain what I saw as the benefits of this purchase.

1. Priced below value. The guys that started it, paid cash for the build-out of the space. They had a 5 year lease that required over 100K in improvements plus deposits, permits, and about 70K in equipment and furnishings.

2. Goodwill – they had already marketed like crazy and had about 100 doctors willing to send them clients.

3. Built in customers – When I purchased the business, they had a full schedule. 3 therapists (The 2 owners plus an employee PT) all working full time

4. Huge receivables – They had not seen any insurance payments, but they had over 120K in receivables.

5. Low asking price – They initially asked for 200K for the business to recoup their actual investment. But, their desperation allowed me to reduce the price to 100K.

6. Willingness for the owners to stay on the payroll- I thought this was smart of me. I got the owners to agree to working for one year for an additional 10K each. Turns out this was this worst thing I could have done. See below for why.

So thinking myself a super-shrewd investor, I bought the business. We did an asset purchase where I would own the name, the prior billing, the lease, but not the liability of the former company. This was actually a very smart move and allowed me to sidestep a huge issue which only reared its ugly head a year later. Thanks to my attorney, I did not receive their LLC.

My first move was to fire the third therapist and replace her with myself. I am a PT myself, so why not save some money? Then I went to work trying to learn why they were not receiving payment. They had hired a billing company to process all their charges and co-pays. So I went right to the owner and asked her what the issue was. She gave me a huge song and dance about how the former owners did all their billing wrong, how their expectations were beyond reality, and how they were doing their best. There was something that did not sit right with me about this woman. I started looking at the insurance company billing statements to see if I could learn why there were so many denials. It turned out they were coding everything wrong. There was no way they could get paid for the work they were doing with improper coding. But the good news was we could easily go back, recode, and resubmit the prior billing. So I did. My wife, who is also a therapist, was helping me. We learned what the Medicare rules for coding were and basically fixed all their old unpaid bills.

Rule 1 to running a medical practice: Code and Bill correctly.

Why had the previous owners failed to do this? They left everything up to the biller. They assumed she would know the correct codes and fix it. They assumed she would take the time to fight for the denials. They were wrong. She only made 6% of any paid bill. She did billing for 30 offices. It takes very little time to transcribe a bill into billing software. She was taking whatever they coded and charged and entering it. She made a nice salary from the 6% the received from ‘clean’ bills (those without error). Clean bills take very little time. Denials take hours and hours. Often you waste 10 hours preparing an appeal, and you are still denied. Coding takes a huge amount of work. It requires reviewing a chart, determining the correct diagnosis and charges. She was not a healthcare professional, she was a biller. So, it was much more cost effective to bill the charges she was sent and not bother with denials.

Rule 2: Never outsource until you understand the job yourself.

The previous owners had no idea how to bill or code. But I now did. It was much easier to code and bill  in our office than to pay someone to fix it for us. So we worked hard teaching our staff, the previous owners, how to correctly code and bill. Guess what? They resisted. They argued. They felt it wasn’t their job. Then it dawned on me:

Rule 3: Never keep the previous owners on as employees. NEVER!

The reason this business was failing was their attitude. They only wanted to  see clients. They had no interest in anything else, even learning how to correctly diagnose and code was ”beneath them”. And it was that attitude that caused them to fail. You must learn all jobs in your business first, then you can hire people to do those jobs. But you must take the time to train them to do the jobs the correct way. You can’t just hire a secretary or receptionist, show them the phone, and say “Get started.” You must know everything the front desk person needs to do, say, and think. Then you can train someone to do the job properly. Their receptionist stayed on. Again, we should have immediately found a new one. She resented us and was trying to help us fail with a passive aggressive strategy. But, I did learn one thing from watching her. She was hiding the fact that the billing lady was stealing the co-pays. 

I sat in the front office one morning and overheard a client discussing his payment with the receptionist. He wanted to be sure we had received it. The receptionist curtly told him that we don’t handle those, that he had to talk to the billing company. Then he floored me. He told her he had. That he paid his bill in full, $450, but received another bill from them for the same amount. I stepped out and asked him more about it. I saw all the incoming payments, and I never saw this $450. He showed me the new bill, and it had the billing companies address. To make a long story short, they had stolen almost $14,000. I threatened her with the police and she not only turned over all the billing and records but refunded me $6,000.

Rule 4: In any business, the owner must control the flow of the money from the client to your pocket. Anything else will result in ruin.

My wife, on the right.

So my wife became the receptionist and learned all the things that could be done to collect co-pays, schedule more effectively, and make the whole office run like a Swiss watch. Then we hired someone that my wife trained for two weeks until the new receptionist could do everything my wife was doing. That is something that very few doctors or physical therapists ever think to do, because it's beneath them. But that attitude costs them dearly. When my wife took over, we were only collecting on about 60% of the claims. We reached 100% within 6 months. (This proves my greatest life rule: Marry a good woman!)

So things were going better. I knew at this point that the former owners were still undermining our success, but I was afraid for them to leave since I felt the referrals would leave with them. So I toughed it out. They did not talk to clients in a friendly way. They both seemed to feel it was their job to bark orders to their patients, give them huge lists of exercises, and discharge them. I felt you had to listen to the client more. Learn what they felt their problem was and shape their exercise program to their needs and complaints. So I handled this problem in the worst possible way. Rather than confront them on a fundamental flaw in their technique, I worked outside the office.  I was receiving more and more requests for me to leave the office and make my rounds to clients homes.

I was  leaving the office clients to my staff.  Huge mistake! My wife felt she should be at home with our young children. She decreased her time at the clinic. But I tried to make it work. I had  meetings with them  about effective communication. I reminded them to code and bill correctly. I was also working more and more hours outside the office to get away from these two assholes. I was stressed all the time. I felt jealous of my wife for being able to spend so much time with our two children while I was stuck working so hard in the office. The pressure was worse all the time. I lost sight of the fact that the business was now profitable. We collected most of the outstanding billing. We paid back our entire initial investment in 9 months. We were on track to make a profit, all in the first year. I hated it all. 


 I thought about suicide.  Even though the business was turned around, it was not giving us a huge income. We had just moved back to Hawaii and we had a new home with a huge mortgage. We were still dipping into our savings. I felt all alone in my plight despite my wife’s help. I felt she wasn’t helping at all. I thought I hated her. We had a huge fight. I left the house in a fit of rage, something I had never done before. I made my children cry. I still remember hearing “Daddy don’t go!” I left anyway. I thought I was going to end my life. I drove to a lookout. I sat in my car and cried.

The 2 reasons I did not jump. My kids. 

Rule 5: Your spouse is never your employee.

So I couldn’t do it. Maybe it was my children, my wife, my own inner need to survive. But I did not even get out of the car. I came home, shamed. I begged for forgiveness and I received it. I went to counseling. What I learned there is the topic of another post. But it really did help. I let the two former owners go. My wife became my partner and together we were the entire staff. We found a smaller office that had miniscule rent. That space was located in a retirement center and had a built in client base. The goodwill of the business turned out to be tangible. We had doctors sending us clients for years and years. It also turned out those former employees were hurting our referrals. Many docs were happy to hear they had left.

Rule 6: Keep your expenses as low as possible to reduce stress and increase profit.

Together my wife and I have built our practice to two offices, both tiny in size and rent. We use an answering service for reception and we have no staff. We are very profitable. The long hours kill me sometimes. But, we survived 7 years of business and stayed married. That really is an accomplishment.

Doug