Fixing healthcare financing (insurance and related strategies) and delivery (everything received by the patient) are some of the most complex problems we face as a nation. Unfortunately, there are no easy fixes. However, if there were one word to describe what will unlock the solutions for the financing problem, it would be “transparency.”
Thanks, Captain Obvious!
I know this is no revelation. For months, probably years at this point, I have read the demands advisers are making for transparency. They are demanding transparency of almost everyone who participates in the financing and delivery of healthcare: insurance carriers, providers of care, pharmacy, etc.
Sadly, some advisors are leaving themselves out as the one exception to this transparency expectation. The hypocrisy of those who demand complete disclosure for others while avoiding it themselves disgusts me.
You can’t be serious
One shocking conversation still stands out. I was talking to an advisor who excitedly told me of his newfound belief in transparency. He was on a mission to educate prospects on the lack of transparency in the system. His passion hit a crescendo each time the conversation got to a description of how the rampant dysfunction hurts us all. His promise to be completely transparent with his compensation was one of the primary reasons he gave these prospects to engage his services.
I know, that sounds healthy, right? Here’s the problem.
When I asked him how his current clients responded to his newfound commitment to self-transparency, his energy subsided. He said—I swear I can’t make this up:
“I’m not having that conversation with my current clients yet. I’m going to wait until I pick up enough new business with this approach.”
Way too common
I would like to believe his position is a rare exception rather than the rule. But I’m not sure it is. I’m guessing there are many of you who have, at least, some percentage of your clients who have no idea how much they pay you. But, again, I'd like nothing more than to be wrong on this assumption.
If you have clients with whom you're not comfortable discussing how much they pay you, directly and indirectly, that is a huge red flag. One of two things needs to happen. Either you need to offer to take a pay cut, or you need to deliver more value.
However, in most cases, I believe you have a third option. The right thing to do is sit down with each client, take a deep breath, and have the compensation conversation.
But don’t just show up and say, “Here’s how much you’ve been paying me.” That is only half of the conversation you need to have. The other half is to explain in a stewardship report the value you have delivered for that compensation.
Trust me on this one.
When you sit down and start outlining the value you have delivered to each client, your confidence in disclosing your compensation will grow as you write out the list. As a whole, this is an industry that provides exceptional value, more value than you give yourself credit for.
Control the conversation
The lack of adviser transparency is an unnecessary black eye on the industry. It legitimately adds to the lack of trust we struggle with already.
Believing that transparency is the key to unlocking the solutions to what ails healthcare, I have a two-fold challenge for advisors. The second challenge first: keep making those demands of transparency. So the first challenge is to lead the charge by being the most transparent of all.
Forced transparency is on the way, but my cynical side doubts it alone will result in meaningful disclosure. After all, 5500 reporting already exists for slightly larger groups, but it is the rare advisor who makes it a part of regular conversations.
Do it now
I also know many of you are using the impending requirements as a reason to procrastinate. I’ve heard more than one of you say, “I’m just waiting to see what the final details of the transparency requirement will be, and then I'll start having these conversations."
Waiting until your hand is forced will do little to create credibility with your clients. Meeting the letter of the law may keep you out of legal trouble, but it won’t keep you out of the crosshairs of frustrated and suspicious clients.
It’s time to embrace the spirit of the law by leading this conversation NOW. Get out in front of your clients and have a mid-year strategy conversation that includes stewardship reporting and compensation disclosure.
By having this conversation now, you will find yourself with a much more manageable 4th quarter. You will also find yourself protected against the competition who will show up and try to argue you are an overpaid commodity.
Maybe the most challenging part of the conversation
I do want to prepare you for an unexpected part of this compensation conversation.
If your book of business is like most, it is entirely out of balance. The chances are that half of your clients (by case count) are only generating 6% - 7% of your revenue. Yet, at the same time, the top 5% of your clients likely generate 30% of your income.
When you start to look at the amount of compensation you receive for each client, you will face a very harsh reality. In many books of business, it is not uncommon that the revenue for the largest clients is 100X (or more) that of the smallest clients. Not that the largest clients don’t demand more attention and resources, but you likely have some clients for whom you are overpaid. However, you likely have substantially more on which you are grossly underpaid.
The harshest reality of all is your largest clients are financially subsidizing your smallest clients.
If a client is genuinely overpaying you, get the amount of compensation in line with the value you deliver. Perhaps there are additional services you can provide them, or maybe you do need to offer to reduce your commission. This will be a rare situation for most.
Much more common will be a need to go to your smallest clients and ask to be paid more. Many of them are likely paying you less than $1,000/year. Asking them to pay some minimum monthly retainer, maybe $250, for the service you provide will be seen as reasonable by most. They will be more than surprised when they learn how little you receive on their behalf. And, for those who don't see it that way, well, you're losing money by holding on to them.
I can see clearly now
I do understand the anxiety that comes with the thought of this conversation. But it is a meaningful and healthy move in the right direction.
How liberating will it be to have relationships with your clients based on full disclosure of value delivered and compensation received?
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