Thursday, March 12, 2020

Systems Thinking: Bringing It Closer To Home

A mindmap illustration of a systems approach to many of the things that affect your take home (net) pay
When we think about all of things that we need to consider when negotiating compensation with a potential new owner/manager, most of us are probably only concerned about base pay, production percentages and benefits packages. If this is good, we're good. And, I used to be in this same group. But, experience can be a ruthless teacher.

So, let me share some of my experiences with those of you that have not racked up forty plus years in the profession, working on both side of the "boss" desk, in private and corporate environments, in practices of two to six doctors, in low cost/high volume and high cost/low volume practices. Maybe, you won't have to reinvent the wheel. Plus, I think this is a good illustration of understanding things from a systems point of view.

What is a system? Thank you for asking! A system is the "game" with all of its "rules" that affect us, the players, and determine if and how "we win or lose." It is all of the departments, policies, procedures, cultures, ways of thinking, agendas, biases and ignorance that come to bear on a particular area or person, namely us, the employee.  Workers are at the mercy of the systems. They have no control over systems. Leadership is responsible for systems. However, in order to know how you will fare, you need to appreciate the intricacies of the "game." You need to think from a systems stand point.

Most of us veterinarians, these days, work on a production basis, i.e. we are paid a certain percentage of what we produce in medical and surgical fees less taxes and certain deductions. Many times there is a base salary in the mix, also.  So, for example, we are paid the greater of X% of our gross production or a salary, whichever is higher for the current period. And we are happy!

But this is only the tip of the iceberg. Looking at the illustration above, one can see there is much more involved than one might expect.

U.S. Tax Code
  • Obviously, you have to pay your "favorite uncle" first. And, the government is a humongous system!

Employment Contract
  • Percent of gross, obviously.
  • Base salary. Usually, you either get your percentage of production (POP) or the base salary, whichever is higher for the period. Ideally, this is designed to give you a minimum paycheck while you are building your production. However, I have been in "systems" where the language of the contract was that POP was not based on gross production, but on gross COLLECTED production, i.e. if the client didn't pay the bill, I didn't get any POP for that invoice. So, my paycheck is dependent on the practice's accounts receivable system; an area I, as an employee, have no input or say about.
  • Negative ProSal. This is my terminology for having to pay the practice back for any base salary paid but that your POP failed to cover. For example, in the first pay period of the month, I get $500.00 base salary. At the end of the month,  I get paid another periodic base salary of $500.00. I produced $4000.00 by the end of the second pay period of which I'm entitled, by contract,  to 20%, or $800.00. They already paid me $1000.00, yet my POP only amounted to $800. So, they TAKE BACK $200.00 of "overpaid wages" and my last paycheck for the period is only $300.00. It wasn't an either/or situation, at all. It amounts to straight production. The base salary language in the contract was "smoke and mirrors." 
  • Play close attention to the Non-Compete clauses. It may not affect your earning potential with the present owner, but it very well could affect future earning potential with a different employer. (This also goes for relief Veterinary services. If you get asked to come to work for a practice that you worked at through a relief service, it might be a violation of the non-compete agreement you signed (Remember?) with the service.)
[A sideline note here. I contracted to work 4.5 days/ week for a set base salary. A pay period was every two weeks. So, I agreed to, and was available, to work  four days every week plus every other Saturday. During the first  two-week work period of my employment, my employer only scheduled me for three days each week and no Saturday. They weren't that busy. However, I only got paid for six days of base salary. This is not the definition of salary. That is per diem pay. I protested and received the other two days of salary. My point was that I was agrreable, available and willing to work the 4.5 days per week. It was their choice not to have me come in, not mine. Unless, it was my choice not to work, I was entitled to my base salary. Be careful, employers, especially of some smaller corporations (that may be under capitalized), may try to cut expenses any way they can dream up. Their "best interests" are sometimes in direct opposition to your best interests. Their systems are their systems!]

Policy Manual
  • This is where a lot of the detail about "perks" and "comps" are listed. The point here is that the Policy Manual may take on the same power as any other contract, especially if the contract refers to items in the manual. (So, get and read the Policy Manual as if it were a contract,  because it very well may be.)
  • Other items may also affect your take home pay. How much PTO do you get? How is it accumulated? How much is a "days wages"  worth if you take more PTO than allowed or take it before it has accumulated? What insurance is offered? What is the employee portion? Is there any allowance for CE? Is it enough to go to a major convention in order to cover all required hours for licensing? Who pays for uniforms? What retirement programs are available? When do they take effect? Is there employer matching? How much? When are you considered vested?

Practice Demographics
  • Where your practice is located may affect your potential pay. Which state? Urban, suburban, rural? High percent of nearby non-residential establishments (businesses)? Neighborhoods mostly house or apartments? Are the residents young with kids (and pets!), older and on Social Security, or single, career climbers? What socioeconomic level is the majority of the residents? What is the level of discretionary income? Unfortunately, considering these types of things is important.

  • It may not be immediately evident, but inventory is another system that can affect your paycheck. If you don't have it, you can't sell it. If you can't sell it, you can't earn your POP. And if this happens too much, frustrated clients will leave to go to practices that do have what they need, when they need it. (Diminished long-term growth; less net income in the future)
  • The inventory system is influenced by other sub-systems, policies and procedures. For example, the method of triggering reorders (tags, want lists, kanban bins, etc.) % of stock outs, availability of alternative drugs (variety), reorder point (is enough drug available to get through the next order/delivery cycle) to name a few.
  • The Lean concept of Just-In-Time thinking is the utilization of inventory (or any resource) only when it is needed, where it is needed and in the amount needed. Seems like a good rule of thumb, but, as with most things, it is relative. In reality, the time from selling out to ordering to receiving new product is not instantaneous. Therefore, some level of safety stock is necessary to keep on hand. How much depends on many of these aforementioned systems and sub-systems are at work and is the big question (Google 'Economic Reorder Point' and/or 'Economic Reorder Quantity').

Average Client Transaction (ACT)
  • One of the major drivers for net income is the the ACT.
  • But, the ACT is influenced by the practice's fee structure, the portfolio of services and procedures offered and whether the there are discounts and coupons available for clients to use (and how your contract counts their value toward gross production).

  • Appointments is another one of the systems that affects your net income, especially appointment density; the number of appointments available per hour or per hour per doctor. Are appointments scheduled on the hour? Half hour? Quarter hour?
  • What are the hours of operation each day? What days of the week?
  • How many surgery days per week? Who gets what days?
  • Can any Doctor see any client/patient who doesn't have a preference? Or, are all clients already assigned to other vets so that you will have to "build" your clientele from scratch with new clients to the practice? And, therefore...
  • How quickly is the practice growing and what is the practice's marketing strategy (another system)? You can't earn from clients that don't walk in the door!
  • How many other doctors are vying for clients? What is the internal competition like? (Believe me, there is ALWAYS some level of internal competition, especially as long as compensation is based on POP.)

Gender Differences 
  • Does this occur in Veterinary Medicine?

This is probably not an exhaustive or complete list of influencers on your net income. However, I'll bet it encompasses more than you previously considered.

Glance back at all of the different systems; all of the different policies, agreements, understandings, aspects of the practice you work for and/or all of the "games." How many of them do you have ANY control or, even influences, over? Taxes? Inventory? Your practice's demographics? Accounts Receivable policies? Fee structure? Appointments? Marketing? You have partial influence in the contract. The Policy Manual??  Yet they determine your ability to survive, grow, enjoy life, contribute to your world?

This is why thinking in terms of all the system involved is so important. And understanding how changes in one area can have profound effects in another.

The last time I interviewed for a job that paid on POP,  I asked to see the last several periods of ACTs, and gross income. I looked at their state of inventory and asked about how they order drugs. I asked how much a rabies and distemper vaccine, plus a fecal exam, routine deworming and flea/heartworm would cost the client. This is one of my "index" invoices that I use to evaluate fees between practices (other "index" invoices include routine canine spay + pre-anesthesia blood work + IV cath/ fluids + pain injection + pain meds to go home or a dental prophy without extractions + routine labs + IV cath/fluids. It is simular to how one might use the S&P 500 Index to evaluate other investments or how the Consumer Price Index works). I had them show me the appointments over the last few months. I drove around the practice to check out the neighborhood. I "Googled" the practice to see client reviews. I checked out if they board, do grooming or have dental xrays and ultrasound. What does the staff look like? Enough to support good client flow? Trained well enough that I only have to worry about that which I am uniquely trained and licensed for? I was interviewing the practice as much, or more, as they were interviewing me.

Just like playing Black Jack in Vegas, I know the odds are in the casino's favor (they set the rules; system) but, I want to get as much in my favor as I can. So, maybe I can choose to play at a casino where they use only three decks versus five, or one that reshuffles only after 75% of the boot is dealt, versus 50%. The more I understand the systems in use, the better my choices will be (hopefully!).

I worry about the young, naive vets coming up who haven't had the level of experiences that I have had.  They are at the mercy of their employer's systems, more and more of which are large, faceless corporations (or "wannabe" corporations) with much deeper pockets and, possibly, a different perspective and agenda. Who will speak up for these neophytes? Who will watch over them? The fox that is in charge of the hen house?

Maybe, it is time for the younger generation of veterinarians, vet techs, vet assistants  and receptionists to consider forming an employment union, the way workers had to during the Industrial Revolution, and for the same reasons. There is power in numbers they say! And, it is the "power" that determines the "game". The Registered Nurses had to do it.

Thanks for reading.

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