The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference discusses provider compensation decisions and processes. It is authored by our colleagues Daniel Goldstein and Bart Walker.
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Advanced Issues for Provider Practice Management Transactions and Platforms in a Competitive Landscape – 4 Key Points
By Daniel Goldstein and Bart Walker
Taking a thoughtful and forward-looking approach to provider compensation decisions and processes can be key to growing a successful provider platform, according to experts who spoke on a panel at the Annual Healthcare and Life Sciences Private Equity & Finance Conference in Chicago on February 20.
Experts included Sean Dempsey, Partner, Sheridan Capital Partners, Amy Dordek, Co-Founder and former Chief Revenue Officer, GrowthPlay and Joshua Gwinn, Chief Executive Officer, Hero Practice Services. Bart Walker, a partner at McGuireWoods LLP, moderated the panel.
Here are four key points from the panel discussion.
1. Compensation needs to be responsive to the market and to providers’ needs. Private equity sponsors and executives cannot come in to a provider platform with expectations of changing compensation without paying attention to how the rest of the market compensates providers, especially if there are significant competitors and other trends in the marketplace. Whether the market supports a percentage of collections model, a straight salary model or some combination, simpler and more straightforward (and therefore, easier to explain and understand) is often better. That said, it is often necessary to offer more complex compensation offerings to more senior providers.
2. Addressing student debt is becoming an increasing priority for providers who are recent graduates. As a result, many younger providers are looking for salary guaranties or debt repayment programs offered as a part of their benefit programs. To the extent that provider platforms take this into account in their compensation and benefits structure, it can give them a competitive edge when recruiting. These younger providers have a tendency to spend money faster and turnover more often, so debt repayment programs can be used as a retention tool.
3. Maintaining and protecting a successful culture needs to be prioritized, including in the areas of acquisitions and compensation. This means that acquisition targets that will be difficult to adapt may not always be successful. With respect to compensation, benefits and advancement, being consistent and transparent with how decisions are made is important. For example, if equity is being offered to providers, a consistent approach needs to be made to avoid confusion or accusations of favoritism.
4. Aligning interests is important, but equity is not always the best way to carry this out. Although equity can be very good at aligning the interests of private equity, management and providers, it is more difficult to provide equity to providers who did not sell a practice (and therefore receive rollover) or as time progresses and the value of the equity becomes increasingly expensive. As such, although the tax rates are less preferable, use of bonus programs and synthetic equity offerings can also successfully align the interests of providers.