068 Dr. Eric Bricker MD Short Term Capital and Physicians Practices Part 2

Private equity is buying highly profitable practices using an aggregator model to improve efficiency and management.  This is done to the detriment of younger physicians who are not equity partners at the time of the sale. They will also not be building a legacy or doing the best care as PE’s focus is on return on investment and capital allocation. 

1. Hosp. Finance Consultant – U. Kansas, Cleveland Clinic, Yale
2. MD - University of Illinois College of Medicine
3. Internal Medicine Residency – Johns Hopkins School of Medicine
4. Hospital Physician – Baylor Plano, TX
5. Co-Founder, Chief Medical Officer – Compass Professional Health Services… Healthcare Navigation company that grew to 2,000 employer clients and 1.8 million members.
6. Acquired by Alight Solutions – 10,000 employee benefits administration co.
7. Started AHealthcareZ Dec ‘18 – 300+ Healthcare Finance Training Videos, 120K Views/Mo
8. Medical Director SimplePay Health Jun ‘22 – Alternative Health Plan

Transcript

Part 2 Short Term Capital in Primary Care

[00:00:00] Dr. Erick Bricker: There was a reason why corporate practice and medicine laws were created in the first place, and they might as well not exist. We have essentially de facto repealed those laws because the private equity firms and the attorneys have basically found a loophole to completely obviate those laws.

So for all intents and purposes, corporate practices and medicine laws no longer exist. 

[00:00:19] Dr. Rogu: Wow. That's pretty sad. and then if they don't exist, I think they were intended to protect the patient. 

[00:00:26] Dr. Erick Bricker: That's exactly right. The interest of a corporation and the interest of a patient will invariably be opposed.

[00:00:34] Dr. Rogu: Right. So interesting. 

[00:00:36] Dr. Bravo: What are your thoughts on Silicon Valley bank Eric? 

[00:00:40] Dr. Erick Bricker: So your characterization of it is very good. And so they had a ton of deposits from venture capital backed firms and also from publicly traded companies and also from like Napa Valley wineries.

I mean, that's where all the Napa Valley wineries put their money to was in Silicon Valley Bank. The funding. For for startups has just gone through the floor since, you know, 2022 and the stock market going down or what have you. And so the amount of money coming into these venture capital firms has gone way down and they're continuing to draw money as they have their expenses.

They gotta play payroll, they gotta buy, servers in the cloud, et cetera, et cetera. So there were continued withdrawals from Silicon Valley Bank and the Silicon Valley Bank couldn't cover their withdrawals. So they had to sell those treasuries and mortgage backed securities that you described.

Dr. Bravo, they had to sell those at a loss. And when Word got out to the venture capital community that Silicon Valley Bank was gonna sell those at a loss, then to Dr. Rogus point, then there was a run on the bank cuz they all talked to each other and they all said, well, we gotta get our money out.

With electronic banking and your smartphone, you can, they literally. , like on their smartphones, withdrew 42 billion in a day. Wow. And so because of what's referred again, everybody on this podcast might already be aware, be aware of this, but in America we have what's called fractional reserve lending, which means that the bank doesn't actually have your money.

The bank is actually able to is able to create the, the rule used to be one 10th. So if you gave the bank a dollar, the bank could create $9 out of thin air. Banks create money and then they lend out those $9 and then they keep that, that $1. And so what happens was is that they don't, they didn't actually have the money.

 All banks in America, a hundred percent of banks in America do not have the money necessary to cover a bank run. There's not a single bank in America that can do that. So if everybody wants their money back at. No, no bank can handle that. And so Silicon Valley Bank ultimately fell because of a bank run.

And so what they're trying to do now across all the other banks is to prevent other bank runs because no bank can survive it. 

[00:02:45] Dr. Rogu: Interesting. 

[00:02:47] Dr. Bravo: I think is a good analogy is because if you are a pediatrician, like, Georges practice, right? It's been around for almost 60 years and they're part of the community.

They got grandchildren now coming in from the original partners. Everybody knows what RB Ks in town. That's a long game. That's like, you know, a real community bank and it's in the best interest of George and his partners to continue to do well for that community because that's what keeps him in business.

if they were owned by a private equity firm, they could cease to exist tomorrow for whatever reason they needed. They need the money to cover another bet and they're out. And that whole community is left without pediatricians. 

[00:03:35] Dr. Erick Bricker: That's right. And really the risk is, is with the debt. Cuz what ha I mean, basically what happened to Toys R Us?

So Toys R was open, was owned by a private equity firm. And because private equity firms load up all their portfolio companies with debt, you have to make interest payments on that debt. And if you are unable because of whatever reason, you're not able to make an interest payment, then you have to then liquidate the company and sell all the assets because that's in the covenants of the debt that they've raised from the.

And so like Toys R Us had had gobs of revenue. They had tons of money coming in you know, tens of thousands of employees, but they literally had to shut down overnight because they couldn't make their debt payment. So anytime you, you foist a whole bunch of debt onto any business, it could be a physician practice, it could be a toy business, then it is you just in, you just automatically infuse risk into the organization and being unable because if you can't pay the debt, like you can try to refinance it or whatever, but you know, the bank might be like, look, you have to just fire sale all your assets because we want our money back now.

That's in the fine print of the debt when they issu when they issued it to you. So that's, that's where, and, and the private equity firm, you know, they don't, to your point, It's not to the detriment of them from a, from a patient care and from a community perspective. They've got a portfolio of companies, if they're gonna take a hit on one of their investments, they've got other investments.

That's why they have multiple companies in their portfolio because they hedge. So any physician practice that has gobs of debt foisted on it is is at greater financial risk than before that debt was put on it. And to your point, some of that, and I'll just say very briefly, some of that debt is just used to pay bonuses to people at the private equity firm.

So that happened with the big mattress company. It was either Sealy or Serta or one of, one of the S's. And the company either went into bankruptcy or almost went into bankruptcy because the private equity firm paid themselves bonuses with. , which is obviously not what you're supposed to do with debt.

[00:05:35] Dr. Rogu: You know what? Back to toys are us toys are us. I guess you could compare them to a local doctor's office or a community bank. They were in the community. I remember my right when my children were young, what would we do when I was babysitting? Let's go. Toys of Us. Let's wander around. Let's look at toys.

It was a social thing. It was a nice thing. And you bought a little Star Wars action figure and the kid was happy, right? And you put money into the business. That's gone. What are, what are people doing going online, shopping on Amazon to buy that action figure. Yes. It was more than just buying the toy.

That's right. It was like a couple of hours of entertainment, social interactions. And Herb, you're old enough to remember this. Remember when you were a kid? Yeah. They would have the toys, rest, commercially. You see the kid, you know, rolling down the, the corridor of toys arrest with the big wheel. . Yeah.

Cause you were able to try the toys and, and play and I mean, that, was good for 

[00:06:32] Dr. Erick Bricker: humanity. and 

[00:06:35] Dr. Bravo: I still remember the jingle. I don't want to grow up. I'm a Yes. Good. 

[00:06:39] Dr. Erick Bricker: I'm a 

[00:06:40] Dr. Rogu: kid that got destroyed by private equity. Yep, that's right. There, there are some times I think, and this is regrettable where selling to private equity makes sense.

[00:06:53] Dr. Bravo: And I think that when I'm the sole partner of a big group, or I'm one of five aging out partners in a group in, this is happening a lot. The senior associates in the practice don't have any interest in running a. . And so private equity comes in and gives me more than my own partners would give me.

And I'm not gonna be around for very long. So if they employ me for two years and then I'm out, that's okay. And my senior associates soon to be partners say, I don't want any, I don't, first I don't want to borrow money to buy you out. Second of all, I don't want the headache of running this business. You know, I think in that situation it makes sense for a business owner to say, okay, at least it gives it a chance of surviving.

I Is that. 

[00:07:46] Dr. Erick Bricker: Yeah, that's, that's a, that's a great point. And that's where, you know, really if you wanted to stem the tide of private equity, then part of the succession planning at the practice is for the physician that owns the practice to make sure that they hire and employ physicians that actually want to take it over.

So I know an independent radiology practice in Florida that has about, I mean, it's not huge. I wanna say they got 15 radiologists and like, and they, approached by private equity constantly and they say no to them because they wanna stay independent. And part of what they're, and they're high of course, cause everybody's moving to Florida.

Their, their patient volume is going through the roof and they're hiring radiologists like mad. They're gonna like double in size this year from 15 to 30 docs. And part of their approach to hiring these physicians is they are trying to find people that are interested. In running the practice and they're showing them how to do it.

So they don't just hire any doctors. They also hire doctors that actually want, that are, that are interested in taking over the business. So that I would argue that from a succession planning now you could also do what other physicians do. Well, listen, if you don't do that, then you are also gobs of physicians just to just wind down their practices.

My pediatrician wound down his practice. 

[00:09:07] Dr. Bravo: Yeah. Yeah. And the, sad part there is that the younger generation of physicians are being brainwashed in the institutions that they can't run a business and that they have no business owning a business, and they just need to be employees. And that's all they, they're good for that serves them well because they can keep them at a lower salary and with lower expectations.

 I'm not sure it serves society well, but it serves the big hospital systems well. Yeah. That's very sad that, that is very sad. I think they do need to be educated. I don't know how they get educated because not everybody wants to get an mba. Well, you don't need an MBA for this. He need common sense.

[00:09:53] Dr. Erick Bricker: Well, and I would argue that it's, important for patient care that if you want, if you care about patients, then you should care about this. Yeah. That is, that is not like, like saying, well, I just am not interested in that. That's like saying, well, I'm not interested in osculating the lungs.

Well, I'm not interested. You know, I just, I'm just not interested in it. You know, I don't really like, listen, as physicians, we all do things that we don't like to do for the sake of our patients. Guess what? This is one of those things. You know what 

[00:10:18] Dr. Rogu: I think there's this, thing going around that practices have no value.

So doctors feel that, why should I pay a senior physician a golden egg or a golden parachute when it has no value? And I think the thought process behind it is it has no value because you have, as a pcp, you are the physician and attached to your name is a bunch of patients on your roster that if I sell the practice to you, Dr.

Bravo, those patients have no guarantee that they're going to follow you. So hence it has no value other than the examination tables and the. . So that's that message that's being pumped out in the world. That's right. So, you know, back in the day what they, they used to sell a practice by the number of medical records.

That's right. You know, but I, I think a practice has a value. Let, let, let me give you an example. We took over a practice I, I don't remember what it was, maybe in 2013, 14 or something like that, of a senior physician. He was actually on our podcast. He was approached by private equity. He was approached by systems.

Then he approached us, do you guys want to expand your practice? We took him over, we exchanged some money, we hired him. He couldn't work the computer. So what did we do? We put him a scribe. We transformed his office into a technological office. The loyalty that he had, the patience had to him was like something I've never seen.

we treated him well. He was out on surgery. We continued, we filled the spot. When he came back from surgery, he came back into the game. He was not ready to retire. He was being forced to retire because that was when electronic prescriptions had to happen. If you couldn't prescribe electronically, you couldn't prescribe.

So that's what finished it for him. We treated him well. We, yes, did we pay too much? Could we have hired a younger person to do that? Sure. But the loyalty he had from his patients was unbelievable. And the culture that he instilled into our organization was unbelievable to the new doctors and even to me.

So, fast forward a couple of years you know, he, he had some health issues. He's no longer practicing, but he's still part of the group. We have a whole wall dedicated to him with pictures and stuff, because it's the right thing to do. It's not just about money. You know, a private equity or something would've bought him, what would've happened a year or two?

Goodbye. You had surgery, you're done. 

[00:12:47] Dr. Erick Bricker: Oh, yeah. I mean, listen, if you, I mean, in my opinion, if you are interested in maximizing your income, then you shouldn't go into medicine, period. Like you should go into a, a different job. Yeah. Like, that's not like you, you just, you can't have that as, because of course, if you're a physician of, of course you can make gobs of money.

If you're in a, a position of, of a physician. I mean, you can maximize. It's incredibly easy to maximize your revenue as a physician. If I just wanna make a gobs of money as a doctor, that is so easy for me to do. It's part of our hypocratic oath is to not do that . 

[00:13:24] Dr. Rogu: Right, right, right.

You, you, you have to have the patient's interest first. , and then everything else, and then the money will follow ab. Absolutely. I saw this very early on. The physicians that made most the most money were the worst clinicians. Oh, yeah. I mean, it was back in the day. Back in the day. I don't think that is anymore.

I think 

[00:13:49] Dr. Erick Bricker: my, my hospitalist boss in my first job at a residency, he said, look, there's, there's, there's, I might have told you guys this already. There's, you know, there's three levels of doctors. The smartest people in medical school go into academic medicine. The middle third set up successful private practice, and the bottom third make the most money.

Because if you, if you figure out that as a physician how to maximize your revenue, it almost de facto hurts your patients. 

[00:14:14] Dr. Rogu: Yes, yes. It, it's a fine balance. Now I have a very interesting question, and, and it is not my question but. How, how do we work with VC to infuse innovation in primary care? I, is there a formula that could work?

Cuz we definitely could benefit from innovation, but to me the rub is that vc. So if I look at it just from an investor's point of view, why would I want to sell a product to 67,000 pediatricians when I could create a product that could sell to a billion persons? There's always gonna be more money selling to a billion than 67,000.

From the doctor's perspective, why would I want to partner with somebody that wants to innovate, create a new app, a new technology platform? If they're short-termers, they're not here for the next 10 or 15 years with me. They, don't want to build a business, they just want to make money and flip me.

But is there a formula? Is there a way that, you know, A middle ground that could be brought about where we can harness the power of innovation and VC and create some good for humanity.

[00:15:30] Dr. Erick Bricker: Yeah, so that's a great question. And so the short answer is that because you're talking about venture capitalists who buy definition, now, venture capitalists have the same model as PE and that they have limited partners that are, you know, endowments, you know, et cetera, that are just looking for a low risk, you know, high return is that the mechanism for the monetization, in other words, the mechanism for making money needs to be very clear from the get-go.

And I would argue in pediatrics that that is absolutely possible and that. The entities right now that are spending, and I would argue wasting a lot of money on pediatric care because the care is not being delivered as well as it could because of, in, you know, innovation could help it, et cetera, et cetera, are state Medicaid programs.

The largest payer for pediatric care in America is state Medicaid. And so many kids, whether they're on Medicaid or not, have their, especially as it relates to behavioral health issues that are being managed through their pediatrician, that could be much. And listen, the pediatrician's doing the, doing the best they can.

This is not a cri a criticism of pediatrician, but the point is, you asked about innovation. Is there a way that care for kids that have behavioral health issues could be better managed? My argument is yes, absolutely. And that the state Medicaid programs would tremendously benefit 

[00:17:03] Dr. Rogu: from that. And how, how do you see that done?

I, listen, 

[00:17:06] Dr. Erick Bricker: I'm not an expert in this area. I mean, I have a son who's special needs, so I've, I have gone through this personally somewhat, but , I'll just tell you a quick story. So my son originally went to a special needs school that was started by a pediatric psychiatrist. So he was an md.

He wasn't a pediatrician, he was a psychiatrist, but he was a pediatric psychiatrist. And he said the best way for me to help my patients is to start a school, because seeing them once a week in his office was not enough. He's like, I need a school. I need a therapeutic school to help my patients. And he started a school that is called St.

Timothy's Christian Academy in Plano, Texas. And he started it in 19 90. And he It, the school now has about 60 students, right. So it's not huge, but they do so much good for these kids. And the, the punchline of the story is, is two months after he founded the school, he died in his sleep of a pulmonary embolism and his widow carried on his desire to start this school.