Game Changers - Crystal Ball Part 2

In the “Crystal Ball” Part 1 post we identified the rise of function, the erosion of reimbursement, and the increase of labor expenses as significant emerging realities in the industry. This post considers four additional emergent trends that will need to be included in the strategic plans of every practice.


4. Competition within the neuro-muscular-skeletal market will increase significantly. This will be driven by another perfect storm that involves: the aging demographics, erosion of traditional reimbursement, increasing co-pays, deductibles and out of pocket expenses, expansion in scope of practice and service offerings, expansion of unregulated providers, more sophisticated marketing and internet based services. Competitors will include physical therapists, chiropractors, personal trainers, osteopaths, and podiatrists among others. The increase in competition will be obvious within each of those professions and across them as a group. Meanwhile expect cross disciplinary alliances to form that will leverage a shared philosophy of treatment and complimentary skill sets. Applied Functional Science will become an important rallying point.


5. Tremendous professional and business opportunity will emerge out a rapidly changing market over the next five years and beyond. BUT, most of those opportunities will be what might be described as “out-of-the-box”. Practices that are trapped in traditional business models and practice patterns or who are slow to change and are late adopters of innovation will find opportunities passing them by. The market will favor practices that are “plugged into the market”, visionary, creative, open to innovation, accessible to financial resources, able to attract and hold superior talent, willing to take risks, and skilled at execution – i.e. those who are Fast Change Artists. Providers who once viewed practice acts and regulatory controls as protective walls in which they could professionally practice will likely find those same walls becoming barriers to entry into emerging out-of-the-box market opportunities.


6. Cash-based business will, out of necessity, become an important element of every practice’s financial strategy and portfolio. This not to say the insurance is going away, but rather that Cash-based out-of-pocket compensation will need to be a growing portion of every Practice Portfolio. That will require sophisticated consumer oriented marketing, more client-centric operations, a superior service experience, and a value orientation. Such business will be conducted to a large extent outside of the walls of the provider’s facility. Professionals will need to engage in financial matters in a much more hands-on-manner than they have historically been willing (comfortable) to do.


Clinical practices and financial practices will collide – there will be casualties.


7. Practices will run like businesses or fail. Excellent clinical skills will be necessary but not sufficient. Competencies in leadership, marketing, operational management, service excellence, and financial savvy will be essential. This is not a far-off situation. It is the case today, although many practice owners and most clinical professionals have not yet recognized it or are unwilling to confront the inevitable. What is needed is a new emphasis on business structure, strategy, planning, investment, business models, competitive advantage, operational performance, accountability, decision support, risk sharing, variable compensation, etc. At least a third of practices today are at high risk of failure over the next few years simply because their business model and performance is not sustainable. Another third of practices are in the balance, i.e. they could tip either way dependant on their short term business decisions. The remaining third of practices are positioned to expand by taking over new business opportunities that will result from the business failure of their competitors.


Whether they are prepared to seize those opportunities is another matter - a matter of vision, risk taking willingness, capital, and expertise.


In the Chinese alphabet the symbol for crisis is a composite of the two symbols - one represents opportunity the other threat. And so it is with any period of change – in times of change some will find or make opportunity and flourish while others will succumb or be consumed by it. There are the hunters and the hunted...


There is an old saying in the worlds of sports and business that goes like this:


“Every morning in Africa, a gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed.

Every morning a lion wakes up. It knows it must run faster than the slowest gazelle or it will starve to death.

So, in Africa it doesn’t matter if you are a lion or a gazelle. When the sun comes up, you had better be running. “ - Anonymous


To run the race, to compete, one must prepare and train. There has been and will continue to be a leveling of the "playing field". Practices large and small, fast and slow, credentialed and uncredentialed, well-circulated and newly-minted all share the the same unforgiving plains of competition. Make no mistake, the game is played for keeps.


Next post I’ll share a brief story from a chapter in my professional experience that is relevant in this consideration of Game Changers.


Bob


(c) Copyright 2009
Performance Builders

Game Changers - Crystal Ball Part 1

Game Changers – “Crystal Ball” Part 1


So far in this series we have identified four Game Changing Trends that are and will continue to impact the health, physical rehabilitation, fitness, and wellness sectors. Now let’s step back and ask the question what impact is it likely to have in those sectors. There are seven important impact points to consider. We'll discuss the first three in this post and the remaining four in the next post.


1. Personal function will be a major factor in the health, welfare, and independence of Americans over the next two decades and beyond. Function will also be an important differentiator within the health community and between professional service providers. A quiet transformation is beginning to take place that will ultimately cut across the health professions. It is a transformation that will not go unnoticed by the payors of health care services. The lines are being drawn today. Those lines will divide levels of participation and opportunity within the provider community in the years ahead.


2. Reimbursement will continue to erode. Providers will be expected to deliver more services to more people for less money per unit of service. This will largely be driven by the growing demographics of seniors and increased survival rates related to medical advances. Physical therapy will be particularly impacted because seniors age 65 and over use twice the services of those who are younger. This is likely to be a difficult challenge for many physical therapy providers whose productivity has remained stagnant for decades.


The insurance industry will continue to compete with healthcare providers financially – insurers currently retain about one third of health care premiums for their own operations. Big-pharma will also compete effectively against healthcare providers for its share of healthcare spending.


Clinical providers will need to become significantly more productive. Not all providers will be able to make the transition to higher productivity, value, and performance.


3. Labor expense will continue to grow in the physical therapy sector. Labor expense will progressively eat into profits unless new business models are implemented. This will be driven by three factors: cost of living, productivity, and labor shortages.


Cost of Living: Over the period of 2000 – 2010 the Consumer Price Index increased at an average annual rate of 2.1% (21% overall). Historical data back to 1921 show similar average annual increases. It is unlikely the next 10 years will be any less, and could be significantly more given a weak dollar and increasing global competition for natural resources.


Productivity: During the past 2 decades overall US labor productivity has increased an average of 2.7% annually or about 50% overall. No such gains were realized in the physical therapy sector. In fact, Physical Therapy has the least favorable payroll to sales ratio (51.5%) amongst for-profit healthcare professional clinics in: optometry (21.9%), chiropractic (28.7%), podiatry (32.2%), all outpatient care centers (36.9%), dentistry (37.6%), mental health clinics (37.8%), speech therapy (38%), ambulatory healthcare (44.5%), physicians (49.6%), home health (50.9%), and physical therapy (51.5%). (US Economic Census) Personal training productivity is also constrained by the dominant use of a one to one service delivery business model similar to physical therapy, although group training options provide opportunity for greatly enhanced payroll to sales ratio.


Labor shortages: The physical therapy industry has been challenged with labor shortages for most of the last 50 years. That situation is almost certain to continue due to a perfect storm brought about by: aging population demographics, reimbursement erosion, low productivity, regulatory restrictions on productivity, educational system capacity, doctoral entry level time and financial investment, return on investment constraints post graduation, and professional specialization.


The personal training industry is also challenged, primary by issues of high turnover related to matters of compensation and career path advancement.


The Bureau of Labor Statistics reports that 10 of the 20 fastest growing occupations are healthcare related. Healthcare will create more jobs over the next 10 years than any other employment sector. Estimates project 30% growth in physical therapist positions and 29% growth in personal trainer positions during the period of 2008-2018.


More next post...


Bob


(c) Copyright 2009
Performance Builders