Barry Russo The Center for Cancer and Blood Disorders – Texas

1. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies Barry Russo The Center for Cancer and Blood Disorders – Texas

2. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies Why do you have to worry about succession planning? Great healthcare organizations are a product of a fundamental duality…balancing the timeless commitment to core patient care values with a relentless drive for change and progress. Only physicians can truly set the culture of a physician practice. Strong Physician leadership is critical to sustain and grow business, especially in this very complicated healthcare market…..balancing entrepreneurialism, patient care, partnership and development.

3. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies What is a succession Plan? A comprehensive program focusing on recruitment, leadership development, practice development, ownership and exit strategies.

4. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies Leadership

5. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies How do you find physician leaders within your practice? Identify the docs that exhibit any type of leadership skills within the organization – the docs who the others look to for direction before they vocalize their decisions. This may not always be the doc who just finished his MBA in the local physician MBA program. It may or may not be the docs with the current leadership titles/positions.

6. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies What competencies should you look for in a potential physician leader? Ability to see the Big Picture Problem solving skills that are altruistic in nature Clinical Credibility An interest in leadership Willingness to learn – not defensive Commitment Not retiring next year The one complaining most often – Pros and Cons

7. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies Do you have a mechanism to “test them out” before they start leading your cultural change? Several positions/functions within the organization are usually available to provide this “testing ground.” Site Management Research Director Hospital Liaison/Hospital Board/ACO Committee Chairs Medical Director Quality Committee Chair Finance Committee Chair P & T Committee Chair Compensation Committee

8. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies Do physician leaders have titles or job descriptions? Physician leaders should have formal titles/positions, with defined roles

9. Physicians Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies Can you help with leadership development? Yes, you can help new “hopefuls,” as well as, existing leaders. - Accounting/Finance 101, 201, 301 - - Accounting/Finance with a message -Strategic Thinking 101 – Frequent discussions about the Big Picture -Discussions regarding Altruistic Conflict Resolution -Focused interchange regarding time management/prioritization -One on One Informal Discussions

10. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies How long does leadership development take? It is a journey, not a destination – continuously changing for new or established leaders - progressing and sometimes regressing often dependent on changes in the doc’s personal and clinical situations. However, success is many times transparent…..it just becomes the new norm.

11. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies How many physician leaders do I need? MORE THAN 1!! Identify areas where physician engagement will assist in driving strategic initiatives OMH Quality Capital Planning

12. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies What if I just don’t have any internal candidates or no one besides the 1 current “defacto” leader? Then you should look for leadership, desire or skill in all new recruits. You should assess the personality and leadership desires of all potential new recruits. This is tough especially with today’s Millennial personalities. However, there are future leaders out there – you have to ask the direct questions to determine their interest level in things like: Board Positions Equity Control over process These kinds of questions also set the stage for their understanding of your future expectations.

13. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies New leadership – What happens to the Founders? If you are developing new leaders – are you prepared for the old ones to share control, equity or possibly exit?

14. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies Ownership/Partnership and Exit Strategies

15. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies Do you have ownership opportunities for your new leaders? Many practices now retain earnings to purchase equipment, buildings, etc. However, if the practice has never retained earnings and thus has “0” or minimal fixed assets – the only assets your docs own is a piece of the A/R. There are a number of A/R buy-in and run-out formulas: - Buy-ins may be dependent on sweat equity or initial income guarantees A/R run-outs at termination are usually not more than 90 days For new docs must have a plan requiring certain workloads or the evaluation of termination should begin which would impact buy-in/out Difficult to have old leaders “lingering-on” – strategic decisions stay on-hold as they focus on their buy-out

16. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies What if your practice has a number of fixed assets? Then things are more complicated…..creating equity opportunities for incoming partners and exit strategies for the outgoing partner physicians – A very slippery slope……

17. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies Is everyone on the same page? Begin by ensuring the “founder” docs are aware that the new docs need to be included in full partnership at some point…for the long term viability of the practice. Also, need to educate “founders” that they do have to exit at some point. How much? Whether or not you have fixed assets, obtain a defined formula or valuation to determine the “price” for buy-in and buy-out. Make it unbiased – no internal influences. If you have assets, the Valuation can be structured to give you Fair Market Value, Enterprise Value or “other value” that may involve Goodwill…Note: Goodwill is almost impossible to sell to incoming physicians Remember that the “founders” want the value to be as high as possible….the “buy-ins” always think the price is overstated.

18. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies Details…. The Buy in price is a big issue – the buy-in process is a bigger issue? Does Sweat Equity have value? The folks buying-in assume that is does How much risk are the “buy-ins” going to take? The buy-ins want “0” risk…the “Founders” think they should feel risk commensurate with historical proportions. For practices with retained earnings will buy-in be accretive or dilutive to existing owners? This has tax and perception implications Buy-in Eligibility - More then 2 years is probably too long in today’s market. Many practices are now offering 1 year eligibility Criteria for eligibility could include citizenship and active practice growth activities as well as 1-2 years of service

19. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies Practical Considerations…. If you can use outside help, include the consultants in every official meeting you have with the “buy-ins” and the “Founders.” They provide legitimacy to your process and also take the hard hits for the difficult messages Be prepared to spend a lot of time on this project. It is not easy as you will encounter many agendas. Stick with it…it is imperative to the success of the practice Execute….once you have started, Git-er-done! The longer it lingers the more questions that “pop-up” and the harder it is to sell….it does get stale

20. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies What does our buy-in/buy-out plan look like in a nutshell? 2 years to partnership track After that, 5 years to full-equal partnership with other senior docs who are diluted Graduated ownership over the 5 years and possible board seat, but no distributions during that period 10 years for full vesting for exit No guarantees – No cash for buy-in

21. Physician Succession Planning – Developing Opportunities for Leadership, Growth and Exit Strategies Questions