On this episode of Inside Reproductive Health, Griffin delves into the pros and cons of compensation models for fertility physicians in conversation with the CEO of Inception Fertility, TJ Farnsworth.
Here are just a few key points to pique your interest:
Different performance camps and metrics: In the realm of variable compensation, TJ highlights the various performance camps and metrics that can be used.
Two main compensation sides: TJ explores the two primary sides of compensation for fertility physicians, namely guaranteed income and variable compensation.
Challenges with KPI-based compensation: TJ shares the drawbacks and pitfalls of tying compensation to KPIs.
Simplicity and variable comp: TJ emphasizes the benefits of keeping compensation simple and honestly shares the mistakes made by Inception Fertility with KPI-based compensation.
Importance of physician ownership and other roles: TJ sheds light on the significance of physician ownership in calibrating incentives within the practice.
TJ Farnsworth’s LinkedIn
Inception Fertility
Transcript
TJ Farnsworth 00:00
So when we step in, we're, you know, becoming a partner with these doctors and I'm a big believer in the concept if it's not broken, don't go fix it just for the sake of changing and and so if it's working for them, then great and a lot of practices, you know, there's like there's different providers who did that are in different phases of life and have different different goals.
Griffin Jones 00:24
Let's get you paid a senior REI wrote in with this question, one of your peers wrote in with this question asking me to interview a CEO on this topic, and I do what you say so you the listening audience, when you want to know something deeper about a particular subject matter, let me know i'll try to find someone who will speak on it. And I'll grow them with a bunch of questions. This topic had to do with the pros and cons of different compensation models for fertility physicians. So I brought on a CEO I brought back TJ Farnsworth, you know him as the CEO of Inception Fertility. And because he's been on Inside Reproductive Health, many times TJ talks about the two main sides of compensation, guaranteed income and variable compensation within variable compensation, you have it tied to individual performance tied to practice performance within those different performance cam. So you have different figures to which you can tie those performance metrics. So which I mean to say you can tie them to KPIs like retrievals transfers, or you can tie them to a percentage of collections. TJ talks about the problems with tying them to KPIs such as who actually performed the surgery was the doctor of record is the EMR reliable, did the person checking in the person check them in with one doctor but was actually a different doctor of record is the accounting system getting the right information, TJ prefers to keep it simple. He talks about some of the mistakes that Inception fertility made in doing KPI based compensation, and why he likes variable comp as a percentage of collections. He also talks about what that variable comp doesn't sell for and why physician ownership is so important in calibrating the incentives. That's physician ownership in the practice. We talked about profit sharing, we talked about when it does make sense to have guaranteed income only and we talk about the division of labor outside of productivity roles. When you have an administrative role a medical director role I pressed TJ a little bit when we were talking about the incentives of five to seven Doctor practices, I seem to think they're harder to align than he does not totally sure I got on his page about that question, but TJ really did thoroughly answered that senior Doc's question. And that was the whole origin of this topic. You might have other thoughts on compensation, you might point out questions I didn't ask. So email me them. Tell me what they are. Give me more topics and questions so we can continue to build valuable content, Mr. Farnsworth, welcome back yet again, to Inside Reproductive Health, TJ.
TJ Farnsworth 02:47
thanks for having me. It's always fun to be on here with you. You seem like this guy. And you're the only guy in the fertility industry whose hair I'm jealous of.
Griffin Jones 02:53
Oh, well, right now is looking pretty similar. You know, the vast majority of people listen to the audio, they don't watch it on YouTube. But right now, but both TJ and my hair doing what it wants. But I think this is probably the fourth or fifth time that you've been on the show I always enjoy having you on. And I like the fact that you came on to talk about a topic that an audience member asked for. So to give the audience context, this was a senior Rei who wanted to know about compensation models. Now this person has exited their practice, I think, is practicing again, as an employee somewhere. So perhaps this is why this person asked, but they asked would you bring a CEO on to talk about the pros and cons of different compensation models? And and I said, I know a guy. And so I think the people like you TJ deserve credit. Because some people would say, Oh, I don't I don't know I don't want to say the wrong thing. It's like the people are asking for this. Come on, try to be generous with some darn information.
TJ Farnsworth 03:10
And so there's not a right or wrong thing, right so it's it's there's there's there's 100 different ways to skin this and I feel certain that there's a there's there's only one truth to this. There's there's not really there's no right or wrong answer to this question. There's just different ones.
Griffin Jones 04:16
So let's try to lay out all of the ways that one can skin this cat, like give us just an intro to the different compensation models that exist and then we'll start to explore them.
TJ Farnsworth 04:28
Yeah, so I think I think all compensation models have one of one or more of a few components. One of which is potentially some type of a guaranteed income, whether it be in the form of base salary, or guarantee on on variable comp, some type of a variable comp program tied to a provider's individual personal performance, then potentially some type of variable comp program that's tied to a practice performance, which could include or be an addition to an ownership model that includes profit distributions. And so I think those are the there are various different ways to do multiple do each one of those components. And some, some called models will include all of them. And some will, would will include, you know, just just certain specific components of it.
Griffin Jones 05:25
Is it rare nowadays to see any model that doesn't have any variable comp, or is there still, some of that may be in the academic sphere?
TJ Farnsworth 05:33
Probably in the academic sphere, you know, we have, we're a little bit unique in that we do operate an academic fertility clinic, and in those in those in those we do have variable contractors in place. But so we think the majority of them are going to have some type of variable cost, because even in major hospital systems, and academic centers outside of fertility, you know, that they're, they're measuring productivity of physicians, whether it be on an RVU basis, or collections basis, or some other way. So I would be willing to bet that, that almost everyone has some type of a variable compensation flavor to it in some way. And, and you know, but there are some models like that, in our operation, I'd be happy to talk about, you know, even specifics around how we do it, Inception, there's no, there's truly nothing that's secret here. And there, we have some we have some practices that may not have an individual productivity component to it. But they have a ownership structure that allows for profit sharing. So obviously, as the practice grows, that they allow for that, I think it's important that we also consider not only the quantitative aspects of things, but also the qualitative because what, what is quoted the right or wrong answer, as we were saying earlier, might be right for one practice, but the culture of another practice, a different model might work better. Usually, even within an exception, for example, we don't have one compensation model we use across the US and Canada, or we have, you know, what works in one market, but each individual practice has some of their own personality to it. And so it works for that practice, from that personality. And some of them have their some of their own, like, just practical differences in terms of the size and scale and, and you've got some of the larger practices where physicians are specializing. And, and, and so it just indicates a need for flexibility. But I think ultimately, those foundational variables in terms of how you're getting compensated are always part of the equation in America, no matter what, no matter which, which worked recipe, you're going to combine those with.
Griffin Jones 07:37
Walk us through two different scenarios. And then because then I want to explain, and then I want to explore that qualitative difference between those, but walk us through two different scenarios of two different practices that have different compensation models.
TJ Farnsworth 07:49
Two wide examples. So in certain scenarios, you have more what I'll refer to as eat what you treat models, where there is no fixed base compensation, it's all variable. So, you know, unlimited upside, unlimited downside kind of a structures to them. And, and those work in certain communities in certain environments, and in all cases, at least with us, 100% of cases with us, all of our physicians are either partners with us in the practices or on a pathway to partnership. So even if they're already partner, or they're, we're on our way to partnership, and so on and 100% of cases, at least for us, the everybody either does or will have some level of stake in the overall profitability of the business. So in that scenario, where it's an eat what you treat model, that eat what you treat concept would be tied to their own individual personal comp, productivity, and then the, obviously the ownership share, which would take into account the overall profitability of the whole enterprise. And then you we have models where, where there is some level of base compensation, I think this is a more common model, where you've got a more some level of base compensation either in the form of a, of a guaranteed minimum bonus, or in the form of a salary, and you got a individual personal productivity component on top of that. And then in addition to that, you know, either their, you know, the more you having or being or on their way to having a share in the overall ownership with the practice. So it gives them the base salary, which I think most most physicians, you know, at least starting out want, so they have some level of predictability around their income. And then you've got the variable compensation that ties to their own personal productivity. And then you have the ownership component that would tie to the overall profitability of the of the, of their practice.
Griffin Jones 09:30
So let's talk a little bit about the qualitative that makes one model fit for one group and not another. What is it about practice that has that it's all eat what you treat, it's all variable with the unlimited upside and the unlimited downside, what makes it a good fit for them that wouldn't necessarily be a good fit for someone else?
TJ Farnsworth 09:55
Yeah, so a lot of it is history. So a lot of it is just the sort of a culture that's built there. So when we step in, we're, you know, becoming a partner with these doctors, and I'm a big believer in the concept, if it's not broken, don't go fix it just mistake of changing. And so if it's working for them, then great and a lot of practices, you know, there's, there's different providers who did that are in different phases of life and have different goals, right. So any what you treat model allows that physician who's who's more interested in a certain lifestyle, to make less, but balance that with with more time for themselves and for family and time outside of the outside of work, while at the same time you generate EMR. So you with the physician who is in the phase of their life, where they want to, you know, you know, maximize their productivity and thereby maximize their income. And so I so allows for that diversity of things. I think, though, that is, we see that model less and less often. But certainly, it's a model, we use us in several different practices. And then, you know, the other side of things is you've got practices where I bet you think some more common model where you have, you know, 5, 6, 7, physicians, that that that you're all aligned, all sort of were recruited, and, and built a culture around sort of a similar level of productivity. And as similar lifestyle goals, you have there on that for a base with some type of an individual personal productivity, and then obviously, a substantial component tied to the overall profitability of the practice. And then I'll introduce a third one for you, we have a scenario where we have a very large practice with 20 Plus RBIs, that has no variable compensation tied to the individual doctors productivity. And so everyone makes the same terms of base, and then they have their ownership of the practice. And the reason that practice does that is that they've gotten so large, that there's that they're their is specializing happening, and so whether that's specializing in certain regions of a market, or specializing in certain aspects of clinical care, where, you know, there may be somebody who is, is clinically passionate about certain things, but that's higher than that, that doesn't, you know, doesn't generate as much from a revenue perspective, but it's really important to the practice to have that component. And it's really important as the group to maybe be in a certain region or geography. And they don't want to penalize somebody for pursuing that that goal. And so the idea being that everyone is contributing to the overall benefit, and, and so they, their variable costs, so to speak, comes from the overall profitability of the business. So rather than everyone rowing the boat in the direction of their own personal productivity, they're all rowing the boat in the direction of the overall profitability of the enterprise.
Griffin Jones 12:44
So in that case, so the third example you use with no variable comp outside of the profit sharing, and that was a 20 plus doc group, does that model only work in a group that size or larger in your view?
TJ Farnsworth 12:58
I think the the the, certainly it's got to be a big group in order for it to make sense. And part of the reason why that group does that is that as they expand into new markets, as they expand into new regions, there's not, if they had a scenario where where where a physician was, you know, half their compensation was based upon their personal productivity that none of the doctors would ever agree to go out there, if so at that new office, and start sort of new and so they developed this culture, where where, you know, whether it was expanding to new geography or somebody who is going to, you know, focus on fertility preservation, and it's early days, where there might not be as much business for that yet until that practice is built, it was overall important for them to be building those aspects of the business, whether it be geography or that aspect of clinical care. And knowing that they want they didn't want to penalize somebody for going in pioneering that new business line or that new office. And this they developed this model do that with. And so I do think that it's unique that you have, you have, that you need a practice that's got a certain level of scale, to get to a place where in the world that's that that's necessary, but they started with a variable compensation structure, they just they migrate that over time.
Griffin Jones 12:58
Are all the salaries the same? Or does that vary depending on seniority?
TJ Farnsworth 13:49
Nope, salaries are all the same.
Griffin Jones 14:20
So then how does profit sharing work in a model like that? If so, I would direct listeners to a book called Great Game of Business, which started off in the manufacturing sphere, but lays out an interesting model for profit sharing and the way profit sharing works in the great game of business model is that people get bonused a percentage of their salary, so it's not, so profit sharing is different from the person that might be make everyone in a company shares in the profit, but it's the person that's agreed or making minimum wage gets a percentage of what they make and then the senior executives that are leading their divisions get a higher percentage because it's a percentage of their salary. And so what how does profit sharing work in a model where everybody has the same salary?
TJ Farnsworth 15:10
Yeah, so I think we're, I'm using the term profit sharing really as a placeholder, because in different markets, there's different in different states, there's different rules, different laws around how you can how physicians can be owners at a practice. And so in most cases, our physicians are just owners. And so they are taking profit share by virtue of the fact that they own a percentage of the practice, if they own whatever that percentage might be, they own 10% of the practice and the practice, you know, generated $100 profit, they're getting $10. And so in certain, in certain areas, we are able to do that because of the regulatory structure in that market. So you just use contractual park profit shares, you can give voting rights and all those types of things that come with with traditional art.
Griffin Jones 15:56
And so in that example, of 20 plus docs, not every doc has the same owns the same percentage of the companies that correct some own more?
TJ Farnsworth 16:04
Some of the more senior doctors own a little bit more. But it's not that it's not as big of a disparity as you might think. And over time, their model is that generally speaking, as us as a rule is, in the event that we do have, what I would refer to as more senior partners with more ownership that you want to migrate them to an equal ownership model, creating multiple classes of ownership is really not good for the culture. From our perspective.
Griffin Jones 16:29
Really, we're talking about owners distribution, in this case, I should clarify that the profit sharing outline and great game of business is for the entire company. So even if you have 1000 people, and it kicks in after a certain net profit, threshold, yeah. So you know, if it's under X percent net profit then nobody shares in that bonus, and it's phased so that people can make it up in different parts of the quarter. But the whole idea is that everybody in the company knows what the target is, and they're all going for that. Do, is there, are you familiar with that model? Do you use that model anywhere where everyone in the company or everyone in the practice can share in the profit after a certain amount?
TJ Farnsworth 17:12
We have the practice wide bonus structures in place in various different markets. But we don't we don't have, you know, company wide profit sharing plans in the way in which you're referring to it that is common in some industries?
Griffin Jones 17:25
Perhaps it's because of the regulation that you were hinting at. But I wonder sometimes why don't some practices just do profit sharing with their partner docs as opposed to actually making them part owners of the business? What would be the con to doing that?
TJ Farnsworth 17:40
There really isn't any pro or con, there's some some scenarios and some of the areas where there's tax advantages. So I think that the probably the biggest driver is tax advantages to it. But But I think generally speaking, physicians from emotional reasons want actual ownership rather than profit share, even though we can design structured profit shares to look and behave exactly the same way as traditional equity does. And our preference usually is just to do traditional equity. It's simpler. It's usually more tax efficient. But but it's oftentimes dictated by the regulatory rules around, you know, the corporate practice of medicine or statewide referral laws that might exist in any given market.
Griffin Jones 18:26
Have you come across any funky state laws off the top of your head that you can remember that, oh, it's harder in this state, or people have to look watch out for this in this state?
TJ Farnsworth 18:36
No, I mean, there's certainly there's their states that are more complicated. But the reality is, is that the, you know, the joint venturing,
Griffin Jones 18:45
Did those complicated states rhyme with Alafornia and Zoo York? Or, or is it not always the usual suspects?
TJ Farnsworth 18:52
It's not always the usual suspects, you might be surprised. Those certainly are complicated states. But even the state of Texas, which you think of, as you know, your way into the free market is one of the more complicated states. So it's not not quite that quite as straightforward. But I will say that any and all of those markets and all those states there I mean that there have been structures in place and have been in place for a long time to accommodate for physician ownership. And just like any, any regulatory environment, there's there's some group of attorneys that have that have constructed a very aboveboard and transparent clean way of doing it, that generates them some fees.
Griffin Jones 19:31
Tell us more about the difference between variable variable comp tied to individual performance versus when it's tied to practice performance.
TJ Farnsworth 19:40
Yeah, so we don't see the what I'll call just sort of traditional comp that's tied to practice wide performance very often. We do have it in a couple cases in our clinics only because they existed before we were there. And we prefer that the we as a company, I think most of the are this way as well. I would prefer that the way in which you participate in, in practice wide performance and improvement is is through profitability, because that I'm a huge believer in aligned incentives. And so if, if my incentives are the exact same as yours, it helps build trust, it helps build confidence in the decisions that we're all making, we all sort of we all win and lose together, that's, that's really, it's got a lot of value. So that's the way we lean on the practice wide accom structure, a variable comp structure. On the personal comp structure, there really are, I think, you know, two main models, one of which is tying productivity bonus to certain KPIs, whether it be retrievals, or adding retrieval being the most common, the other model, which I think is what we prefer, and which is some something tied to a percentage of overall collections of a productivity from that individual physician, that way, you're not tying it to some sort of clinical activity, I think, certainly, the intent of the bonus per VOR concept was likely never to try and drive some type of, of a clinical behavior, because obviously, we trust all of our physicians to make the right clinical decisions, you know, that's, that's, that's their specialty. But, you know, obviously, to do certain number of VORs, you got to usually you have to get through so much diagnostics, and so many IUIs and there's sort of some some mix of all that in there. But I do think that as you're moving more and more towards more managed care coverage for services, whether it be progeny are kind body or traditional Aetna, United, otherwise, you as well, as you see it, generally speaking, a an environment where you've got some physicians that like doing more surgical cases, you've got some physicians who like doing more for Brentford or fertility preservation in their practice, whatever it is, you know, a variable comp is tied to just collections, you know, allows for, you know, there not to be any, any environment where you're, you know, you're encouraging one behavior or another. And that's where we are moving to as a company, I think a lot of people in the industry are. Doesn't mean is that that's not to say, we don't have several practices that still operate off of, you know, what I call a KPI based model where they're using, you know, VR is or IUIs, or transfers or some other metric or combination thereof. But it's, it gets complicated. And I, I'm, I'm a sales guy at heart, and I'm a big believer in people's compensation program program should follow the kiss strategy, you know, just keep it simple, and make it easy for everybody so that there's no unusual complicated math to be done at the end of the month or quarter.
Griffin Jones 20:11
So I started my career in radio ad sales, it was my first job out of college, which for anybody that's not familiar with that, it's here's the phone book kid. It's 100% commission, there's no training, it's a, you're a 21 year old kid, great, go figure out a way to have this 57 year old business owner who's been doing great in business for 30 years, give our company money, surely also had someone at our company who had burned that person in the past and it was 100% commission, I learned a lot from that. But the Keep It Simple was, that's what worked from It's Okay, if you want to sell more of this, tell me what the commission on it is. And but it sounds like, you know, just percentage of collections is a little bit different for so in my case, it was if you got this much new direct business, it was this percentage, if you could sell this much of our new online revenue stream, this much of our event revenue stream different commissions, is there that within that the percentage of collections or just percentage of collections just tend to be flat, because otherwise you'd be back in that KPI model?
TJ Farnsworth 23:43
It is the flat otherwise, you're really back to a KPI model. That's just not fixed dollars. Yeah, percentage of collections tend to be, you know, maybe there's a sliding scale involved. But you know, in terms of thresholds of dollars collections, but but it's still just all dollars, not, you know, I just think it's from our my perspective, it's, it's adding a level of complexity to the to the model that, you know, again, I'm all about aligned incentives and trust. And if you don't ask, if I have to get on a spreadsheet to show you, how a calculation is done and take you take 45 minutes an hour of your time every month or every quarter to make sure the numbers tie out like you think they should. Yeah, it's just it's it's more administrative headache, and the fastest way we can burn out and frustrate our clinicians, which obviously include our physicians and providers. of all kinds then is its administrative BS. And so we prefer not to add another piece of that to the table.
Griffin Jones 24:41
Aligning incentives makes sense but what's complicated about what's that where does the administrative headache come from? It seems straightforward number of retrievals or number of transfers or whatever, what complicates it?
TJ Farnsworth 24:41
Yeah. So you know, it's, you know, I, you know, who performed the retrieval versus who was the doctor of record, making sure you can pull that out of the EMR consistently and reliably you know, and accounting is doing that from from Nashville, and does that actually align with what happened in the practice? Because just because somebody, you know, just because somebody at the front desk, check them in for retrieval, under Dr. Smith, when Dr. Jones was the doctor of record, and has a economic impact to that physician, it's just it from a, it seems simpler than it is from an from a from a, from a practical application perspective. And it's not overly complicated, look we do it, but it's just simpler to go, you know, you had $100 and collections, you get this percentage of it. And it's it's black and white.
Griffin Jones 25:35
So it doesn't that that makes sense why you'd be moving toward that as a company. But doesn't some of that appear in the in the collections, you know, that if it was the doctor of record versus the visiting doc, how, how was it more clearly attributed with collection?
TJ Farnsworth 25:50
Because on the claims data, when we know when you submit a claims information, it's it's much cleaner that way, versus pulling out the EMR has a lot of impact on who's just charting it and otherwise. And look, ultimately you're solving for the same thing, you know, a certain number of these KPIs all add up to a certain, you know, on a blended basis, all at a certain dollar amount, you're, you're solving for the same thing, it's just how you get to that solution.
Griffin Jones 26:16
You said something earlier, in the when we were talking where we were talking about the different models, the blend of guaranteed income and variable comp, and you've got some that are almost all guaranteed income, and then you got some there, all variable comp, and then you've got the blend. And you mentioned, you know, sometimes you'll have a 5, 6, 7 physician practice where they've got similar productivity, they've got similar lifestyle goals. And I was thinking TJ, I've been under the hood of a lot of five to seven Doctor practices, and they never are aligned on on productivity and lifestyle goals. There's always one or two workhorses, that are a little bit grumpy, that they're doing a lot more volume, or, or they just, you know, they'd like their partners to pick up the pace or, and that's where a lot of the things that you come into, like was it actually my patient was? Were they using my nurse, etc? Come into to play? And so how do you align a group like that?
TJ Farnsworth 27:20
Yeah, I think that goes to not having the base comp be, you know, all that substantial from a from a I mean, it's obviously an important component, certainly, as a physician starting out, you know, they're fresh out of fellowship, that that's a more important component, the long term, you know, the variable and ownership components, I think are, you know, are always going to better align everyone's incentives. And not just, you know, I, you know, when I say better aligned incentives, I'm not just talking about Inception and the physician, I'm talking about physician and physician, a lot of times physicians are concerned about how does, how does this affect my relationship with inception, and who's got what incentive, and a lot of times, to your point, it's not us, they have to worry about, it's amongst the doctors, and I think that's mostly, it's mostly acute when you've got some generational differences, where you have some physicians that maybe are in the middle of their career that that, that kids are gone. And then they got some younger physicians that maybe have young children, and that want to be there for certain things. And I've got a seven year old and a nine year old, and certainly, it pains me sometimes when I'm on the road traveling, and there's a school play, and I understand the desire to be there for those things. And, and so it's always a balance, and, and it's never a perfect world, but I think you're trying to get to a place where you've got as much aligned incentives as possible. So that, so that, you know, the physician who is, you know, interested in a different lifestyle than another, you know, but they're both equally interested in overall profitability, the practice, you know, maybe one person is able to do one component of the business, maybe somebody is able to do cover the lab more often and do more retrievals earlier in the morning, so they could be done later in the day to look and be a little bit more of a division of labor that that occurs, so that I, you know, I could take some workload off you, or you can accommodate some component of my career, that alignment to the incentive allows for that. And then for the guy who wants to or gal who wants to just, you know, I mean, work seven days a week, you know, 12 hour days, you know, that, you know, having a component that allows for you're rewarded for that make sense. And, and so, we try and have a combination structure that allows for there to be as little animosity as possible, developed from those varying different places. And but I will also say that, you know, aside from those generational differences, most of our practices tend to recruit like minded physicians, so yeah, whether you know, whether it'd be somebody who's whose kids are now gone. They're, they're empathetic to the physician who's got up third grader, that hey, I was that place I was that place one time in my career. And, and people were empathetic with me. And and I'm going to I'm going to help them at this stage in their career. And so those are those are qual, those qualitative differences that exist from, you know, I call practice personality perspective that I think are important when you're evaluating whatever, comp structures,
Griffin Jones 30:22
I see the generational side go both ways, sometimes. On one side, you might have someone whose kids are out of the house, and they they're ready to work because it's that, golf or their spouse, and they, they just, they'll go to work and, and sometimes you'll have physicians with younger kids that need more time with the family. But I also I see a lot of young ducks who, they they go home, they kiss their kids Good night, and then they go right back to work, you know that?
TJ Farnsworth 30:49
That's absolutely right. That was just meant as one example.
Griffin Jones 30:52
And then there's a lot of Doc's closer, who are a little bit older than say, Man, you are, you're traveling the whole globe, you're going everywhere.
TJ Farnsworth 30:59
Yeah, and I want to I wanna play more golf or whatever. Yeah, totally. There's no question that goes both ways. And I don't mean to say that the one is, whose kids are gone, or is always more productive. That's not the case at all, we absolutely have lots of young physicians who are just absolutely be focused on the greater degree of productivity. It's really just, there's not one or one right or wrong answer, right? Like, I completely understand why I mean, I'm a workaholic with a seven and a nine year old. So I totally understand that that person is sacrificing something and, and there should be reward at the end of that for that. And I totally also understand, my wife just retired earlier this year, after 20 years. And because she wanted, both was want her to have more time with the kids. So yeah, neither one of those is right or wrong. So
Griffin Jones 31:44
You brought up something else that begged another question about the division of labor of things that are outside of productivity, different administrative roles, if someone is part of you know, they they are part of a committee that makes marketing decisions?
TJ Farnsworth 32:01
If someone could take more call. I mean, there's all kinds of things,
Griffin Jones 32:05
But what about those types of things that the practice needs to run? But maybe they have an administrative role? Maybe they're the medical director, maybe they're running a fellowship program, if you've if you've added that on, but they're not aligned with productivity? How do you align incentives? Or how do you account for that? Because they're, they're still contributing to the overall group, but they're not as their collections aren't as high.
TJ Farnsworth 32:29
And that's why the ownership vote component is so important, right? That that aligns everyone perfectly, because, you know, and then all of those other things that you're doing that healthy overall practice on a more global basis, you see that benefit yourself and the rest of the group see that sees that benefit of that work you're doing and is appreciative of that?
Griffin Jones 32:49
Does it still tie it because if we're all sharing at the at the the overall level, but you're able to see more, folks, because you're getting a higher and you're getting a higher percentage of collections, but I have to do this? It still seems like Person A is winning out?
TJ Farnsworth 33:05
Yeah, I mean, look, there's not I mean, you know, perfect scenario, right? There's no one perfect answer. And so you have to look at individual situation and say, Okay, maybe there's something you need to change here. You know, there's, there's all these sort of guidelines and rules, and they're all made to be broken, so that so that you can make the right structure for that one group. But some groups might say to themselves, hey, this doctor is going to do make it, I mean, going back to that practice, I mentioned that it has no individual variable costs, because at this individual doctor is going to do more of this one thing, that you may generate less individual collections, but it helps the overall practice. And that's why there's certainly a more common structure in our in our world where, where a small component of things or smaller component of things is tied to very their individual variable, personal productivity. But still, a lot of their comp is tied to the overall profitability of the enterprise, because obviously, their individual personal productivity, and everyone's individual personal productivity impacts the overall productivity of the practice, too. So all this is tied together. It's, it's as you pull one lever up and down, it impacts the other levers.
Griffin Jones 34:07
How does overhead play into all of this?
TJ Farnsworth 34:11
Well, I think that's what that's why the ownership component is so important, because when when physicians have ownership there, all of a sudden, as just as interested in all we are, and being efficient with our use of overhead costs, and why I say efficient, I don't mean, you know, as low cost as possible. That's, I know, there certainly are operators in the market, that sort of focus on low cost. And there's certainly a market segment for that, and a component for that, and that's fantastic. They're meeting the needs of patients in that segment. That's not our model. So, you know, we are, you know, but but at the same time, you're always trying to be cognizant of not spending more than you need to because all of that ultimately has to be passed on to the patient in terms of higher cost of services. And so, you know, or lower product or lower profitability for the for the owners and so, so I think It's it's in, it's important that it helps to align the incentives. Okay, we're gonna go expand and build a new satellite office and invest in that. And that's going to reduce our profitability for a little while, but at the same time, it's going to long term grow our profitability, and it starts to get everyone thinking, longer term time horizon versus just what are my collections next quarter. And, and it really gets us more aligned in terms of what the strategic goals are, for that practice.
Griffin Jones 35:30
So it the two balance each other out their collections gets them thinking about what they're doing in the present, but the ownership accounts for all of the things that that collections might not account for, or you simply sometimes need to counterbalance both things like if I have, like, if I had an employee satisfaction score only is it well, that could come at the cost of just letting my employees do whatever the heck they want, and not having any accountability to the business or not having any accountability to the customers. So you might want two or three and this sounds like two you have ownership and you have individual bonuses on or individual comps somewhat tied to collections. So how do these so So then how do you make some of these decisions involving partners is that some decisions are going to be made at the executive level? Some you involve them more? How does that work? If someone says, Well, I think this is wasteful, I think we're wasting money on this supply that we could get from a cheaper place. How do you make those kinds of decisions?
TJ Farnsworth 36:38
Yeah, I think it depends on the individual decision. I mean, clinical decisions, we obviously rely entirely on the physicians, when it comes to business things, some of which we make on individual practice basis, we discuss it as a group and make it a decision together, some of which has to be made, you know, on a on an enterprise basis, and we wouldn't choose different accounting systems for different practices, for example, that just doesn't make practical sense. Yeah, we uniform, you know, health benefits, right? We buy. Inception is 2600 employees now in the US and Canada. And we buy health as health insurance for everybody at once, right? So we are not we're not we're not sitting down with practice individually going here, our options between United and Cigna and that decision is being made globally. But that that alignment of incentives builds the trust to know that we're making the right decision because it impacts us all equally, I'm not going to, you know, we're not going to we're not going to make a short term decision, then have terrible employee benefits that ends employee ends up in the end bad employee satisfaction, so that we have high turnover, just to just to benefit the bottom line. But we're also not going to go out and you know, purposely pick the highest benefit choice for no reason.
Griffin Jones 37:53
I thought of another question that I want to make sure I asked you before we're done. But to clarify, we're going back to the the the way that collections is tied to comp that it's not collections minus overhead is it's
TJ Farnsworth 38:08
No, no,no, off the top. Otherwise, everyone starts to wonder what that overhead means. I mean, the the collections minus overhead is their ownership component. That's that is. That's, that's that piece of it.
Griffin Jones 38:21
Tell us about the difference in equity at the practice level equity in the parent company level, and how each of those can work.
TJ Farnsworth 38:31
Yeah, I mean, it can be the equity and the practice level, you know, the, the, the physicians, and everyone that participates in that can see, hey, I do X, and it impacts y. Right. I mean, you know, ownership and the inception level. Yeah, it's, it's, it's, you know, any individual activity is diluted by the same by the scale of the business. Right. So it's, it's hard to see how your individual participation impacts the overall whole. In addition, the our practices all make profit distributions on a monthly or quarterly basis. Inception doesn't do that Inception invests reinvests its earnings in in growth. And and so the only time that physicians would participate in the profitability of their or their or their ownership at the inception level, is it a liquidity event, which obviously has got a lot of benefits to those physicians, but you know, it's there's not like the new one is not as a right or wrong, it's just they're just have different different positives and negatives versus, you know, the monthly or quarterly profit distributions that happen at the practice level, that obviously impact the lifestyle of that physician in terms of their ability to support themselves and their family.
Griffin Jones 39:44
Can that misalign incentives between practices though, if people are bought if they if they share in the profit of the at the practice level, but not at the parent company level that that makes one practice Want to go in one direction or another in a different?
TJ Farnsworth 40:03
We don't see that? No, I mean, we have, we have both. So we have scenarios where physicians are ownership at the at the parent company level. And but in all cases, physicians are either owners at the practice level or are on their way to be owners at the practice level, because that's where they can see the impact of the profit distributions. And obviously, that profitability, the local level impacts the profitability of the parent company level. So that's where the alignment of incentives happens between the practices and the parent.
Griffin Jones 40:35
I've asked you quite a lot about different schema that can be used for compensation. What haven't I asked you? Actually, before I asked you that question I want. Are there any examples that you think of that you're comfortable sharing of? Hey, that was a mistake we made earlier on that we we did something and it it misaligned what we wanted, but is there any example that you'd share?
TJ Farnsworth 41:00
Yeah, I think that, absolutely. I think I think, I don't know about you or your listeners, but I Oh, we learn a whole lot more from the things I do wrong than from the things I do right. Because it hurts. Yeah. And yeah, I think, you know, going back to an earlier comment I made, you know, we have certainly our past created compensation models and structures that we thought drove alignment of our interests, through the through compensate through complicated variable compensation structures, you know, you know, complicated sliding scales of percentages, complicated thresholds, of hurdles, you know, separating, you know, revenue associated with certain services, from others and complicated KPI models, and it always breeds a certain level of like, or somebody, you know, are you are you playing with the numbers are you gaming in the system, you know, are you and it it, it creates some a level of mental gymnastics that, that is brain damage for both Inception and then also for our physician partners, that it's just, it was unnecessary, and it was a it was, and we, and we created a scenario one time, where, you know, we we segmented once the ownership of the business into the physicians, and inception. And those physicians, you know, all a shared in the profitability of the business after the compensation of the physicians using this as an example, the second example of things we did wrong, and what it ended up doing was an unintended consequences. It made those physicians, you know, an incentivized to hire new doctors, because those new doctors would only impact their side of the profitability. And that just made no sense. And that's why, you know, we've gotten to a place where we're real big on, you know, we there's no, there's no, there's no classes of ownership, while certain state states might say we've got to, we've got to create, you know, create that call them super separate things, because one's a physician and one's not, you know, we don't get money, we, you know, Inception doesn't get dollar one, and the doctors get dollar two, we all share in dollar one. And we all share in it the same exact way. And it just creates a scenario where there's a level of transparency, and a level of trust that's developed from that, that I think, you know, we we, in certain instances, frankly, screwed up at various times in the past, you know, that in code in combination with screwing up the variable comp structure through various overly complicated models that I think, again, when it gets so complicated that everyone's got to get an Excel spreadsheet out to understand it, it just creates a scenario where you just naturally breed mistrust. And that's not what we want.
Griffin Jones 43:43
Well you've certainly answered the original question from the doctor who wanted us to cover this topic. I'm gonna let you conclude. How should we conclude about compensation models for fertility doctors?
TJ Farnsworth 43:55
You know, I would tell you that I think it's important for everybody to realize there's not one right or wrong answer, that the individual dynamics of a specific practice might drive the there might be really good reasons why something's been done that way. And And certainly, if you got a physician who is evaluating a job, I think, oftentimes asking the why question like, why do you do it this way? Like, you know, and why have I take this job over here? Is the structure different than the job over here? I think it's really important, because, you know, I think, in most cases, I think there'll be a really good explanation for why and it'll make sense and it'll, it'll give you the sense of confidence in making that decision. And I think, you know, whether it be like the geography or the size of the practice or the individual culture of that individual practice, you know, it's really important to find the right answer for that right practice. Not, you know, hey, there is one right answer for all practices.
Griffin Jones 44:52
TJ Farnsworth, it's always a pleasure having you back on. I look forward to having you again. Thank you for coming.
TJ Farnsworth 44:55
Thanks, Griffin.
Sponsor 44:55
You've been listening to the Inside Reproductive Health podcast with Griffin Jones. If you are ready to take action to make sure that your practice thrives beyond the revolutionary changes that are happening in our field and in society, visit fertility bridge.com To begin the first piece of the fertility marketing system, the goal and competitive diagnostic Thank you for listening to Inside Reproductive Health.