Local physical therapy firm plans to survive tough industry conditions
Tough times call for tough measures, and Drayer Physical Therapy Institute is taking them.
Its recent growth was prompted by hard times leaders don't expect to ease anytime soon, but they plan to emerge victorious.
"This was a record small-size investment for the Goldman Sachs private equity guys," says Luke Drayer, CEO of the company that bears his name. "In addition to our strong financials and things, they were just enamored with our story and our culture. When you can get Wall Street to give you an ear and an eye to something like that, something's going on right, right?"
The company started in 2002. Four years later, it had 28 locations in six states, and Drayer told the Business Journal then that he didn't want the company to get bigger than 40 or 50 locations.
There are now 107 Drayer locations in 14 states, with about 1,700 employees, and the growth strategy calls for adding 20 to 25 a year for the next five years. The company is still solidly in outpatient physical therapy, but Drayer said the leadership team would now be willing to take a look at a diversification strategy if a good one arose.
The business environment, Drayer and company president Eric Williams say, starting with what Williams describes only as "a major reimbursement change with a large payer here in Central Pennsylvania."
"Had we not expanded beyond the borders of Pennsylvania, it would have been catastrophic," Williams says. The choice was between growth and death, so starting in 2010, Drayer began adding 19, 20, 24 locations per year. But it didn't gain a lot of ground.
"The last 30 clinics we've built, we've maintained the status quo," Drayer says. "When you consider the reimbursement environment that we live in today and how it's cratering, we've been able to grow our way through that, but we've maintained as a result of all of this growth at the end of the day."
Along the way, Drayer suspended 401(k) matches and merit increases, then reinstated them. Two weeks ago, it suspended them again; Drayer says the company took reimbursement hits in excess of $11 million in the last 30 months. Medicare, which accounts for a fifth of its business, rolled out three initiatives this year that will cut the company's revenues more than $5 million.
That's before the company feels the impact of major employer provisions of health care reform, under which its current insurance coverage would count as Cadillac class and therefore subject to an extra tax.
And growth, although essential, isn't easy. The same market conditions that are pushing Drayer to expand will inevitably cause some physical therapy practices to fold. Those will represent opportunities for Drayer — but not all good ones.
One reason is accountable care organizations, a result of health care reform. ACOs are supposed to improve coordination of care, but more importantly for Drayer, they're typically formed by big, powerful systems and focused on keeping care in-network.
Drayer has long focused on secondary and tertiary markets, avoiding the imbalance of power it would face in major metropolitan markets and preferring to be invited into an area. But now the company is having to factor ACOs into its strategies, too.
"If it's a physician group that's trying to get paid something for their PT practice prior to selling their medical practice to a local hospital with an ACO that will only refer inside of that ACO and I'm on the outside looking in, I just spent some really bad money," Drayer says.
So far, that hasn't happened, and Drayer notes that the Goldman Sachs team and connections have been a big help in avoiding those situations and deciding how to best deal with ACOs.
Another part of expanding Drayer has more experience in: Staying true to the core values that have brought it this far. That, Williams and Drayer say, means being incredibly careful in hiring and acquisition and emphasizing culture constantly.
"I promise you, you're going to work harder than you've ever worked in your life," Drayer says, quoting a note he sends all new employees. "But remember you're blessed, and with those blessings you're called to make a difference."
They see a difference too, Williams says, with clinical staff turnover of just 6 to 7 percent, far below the industry average of 20 to 25 percent. Drayer employees are also characterized by strong community and charitable involvement, he says, and the company's quarterly Spirit awards explicitly encourage generous out-of-office behavior.
The benevolence also shows up in the office. Last year, Drayer performed close to $8 million in charity care.
"A lot of our competitors will say, 'The money stops, so does the treatment,'" says Williams. "Our perspective is you're going to get the care that you need to get back to the level that's necessary."
"My sense of marketing in this business is take good care of the patients and they'll be glad to go and tell people how good their experience was," Drayer says. The company now sees about 5,500 patients a day.
In the process of growth, Drayer has also recognized the need to make some other efforts.
"I tell people no a lot — all of your radio, television, print," says Gillian Bobb, Drayer's marketing & advertising manager. "What I'm putting out is usually in the hands of our people to put in the hands of our referral source."
Drayer also recently revamped its website and ventured into the world of social media. Williams says that's not so much to reach consumers as it is to give providers interested in joining the Drayer team a good introduction to the company.
"I'd love to be at a point where, as opposed to the team going out, they're handling calls from the people that have heard about the organization, understand what we're all about and want us to come," says. "That has actually started."
Drayer also has other reasons for optimism in the future. Older people use physical therapy more than young ones, and the population is aging. He has seen the market swing before, and come back. And he is convinced outpatient physical therapy is part of the health care solution.
"Three-fourths of our patients or better are done spending dollars for that particular musculoskeletal issue when they're done with us," he says. "When you consider how cheap it is in the grand scheme of things, it would be tragic to cut it out."
And, Drayer says, "I truly believe we have the best team in the industry."