The latest episode of the CFO Thought Leader podcast by Forbes columnist and author Jack Sweeney kicks off with this extremely accurate description of Goodroot:
“According to CFO Jim Harper, the best way to transform the current healthcare system is to replace its connective tissue …”
In this detailed interview, Goodroot CFO Jim Harper shows how Goodroot’s affiliate companies collaborate to reinvent healthcare. He also explores his entrepreneurial background of collaborating on 18 (!) businesses with his dad growing up and shares lessons on his career path at companies like Stanley Black & Decker.
While Jack was clear on Goodroot’s mission, he asked Jim to explain how the company works.
JACK SWEENEY: I had imagined that Goodroot was a type of holding company, or is this an incubator, is it a private equity, in some ways, firm? What exactly is Goodroot? Describe it for us.
JIM HARPER: I would say Goodroot is a company which is in its own category. And part of that is that it has tenets of, say, a PE firm. But it’s more than a PE firm. It’s more than an angel investor. It’s more than a holding company because it has its own mission, and it has aligned companies that help to reinvent healthcare one system at a time.
It started out with RemedyOne, which is in the pharmacy space, and then spun out a consultancy practice, which is AlignRx. And we kind of moved a lot of the, what we call, “enabling services” up into Goodroot.
Goodroot right now has both enabling services that provide strategic guidance to companies that are part of its family. It incubates and grows ideas and communities. And part of that is free and amplify. We free and amplify talent and resources that are trapped in bureaucratic systems that are no longer serving us. If we can identify an idea or person and bring them in here, envelop them with enabling services, envelop them with strategic guidance, have that person be freed and amplified with a business; now that business is supported.
From an entrepreneurial standpoint, if I have a great idea and I want to start a business, it is extraordinarily difficult especially if you’re on your own. But if you have attorneys, back office finance, payroll, HR, strategy, finance in terms of capital and investment behind you, supporting you, you can focus solely on that core competency and building up that business, as well as deep resources from a referral network and working with other companies.
The thing Goodroot is really after is changing the industry. So it’s shining a light of truth on the industry and trying to influence institutions within healthcare to eliminate that waste. We can’t just do it alone. If there’s other organizations that are aligned with what we’re after, then we can partner with them as well.
A number we often cite is that Goodroot has reduced healthcare waste spending by over $800 million since 2015 and we’re on track to eliminate $30 billion in healthcare spending by 2025. Jack asked Jim to explain exactly what we mean when we talk about “waste.”
JIM HARPER: When we look at waste, it’s when something is being overpaid and if there is not enough access. AlignRx, as an example, consults through brokers to large employer groups, right? So if you have an employer, it might be self-insured, not through an insurance but self-insured. And that employer with, say, a thousand employees, which is a big economic driver of our country, has its benefits structured such that it’s not efficient.
We peel down all the detail and understand: Why are you paying so much? What’s going on here with this particular benefit? How might you restructure that to reduce those costs? Reducing those costs actually can be a million dollars or more to a 1,000-employee company. We just recently saved $29 million of spend from a particular contract — it was more complicated than the way I’m just describing it. We count that [toward the dollar figure of waste spending eliminated]. Those are costs that are no longer spent. It’s as though if you take day-minus-one before we got there, they were taking those millions of dollars and they were just lighting them on fire. They might as well have done that. And now we’ve saved that.
So what does that do? That reduces the premiums that people pay. That enables a lot of that capital to be freed up in different ways, in more efficient and effective ways than it was before. So that’s what we mean by “waste.”
And there’s a lot of it there. They talk about medical spend; there’s a lot of it in pharmacy spend as well. There’s a lot of inefficiencies because of all the different players in the marketplace. It is extraordinarily complex. But if we can focus on one or two lines of business and focus on reducing that waste for our clients, that’s what we mean by it.
Since the podcast is geared toward finance executives, Jack was especially interested in how affiliate companies are structured.
JIM HARPER:We have multiple businesses and we wanted to give ownership to the entrepreneurs and key management to incentivize them. We also wanted to give them a sense of security so they can focus even more energy on growth and success.
And that sounds pretty straightforward, but we also had two challenges. We have multiple LLC companies, so direct ownership becomes really complex very, very quickly. And direct ownership also means the person is no longer an employee but an owner, which means no more W2 earnings and withholdings. It becomes quite an administrative burden on just about everybody.
And then we also wanted to ensure the owners weren’t only focused on their own businesses but also cared about the other affiliates and the success of Goodroot. So late last year, I set aside a few days and cleared my mind of everything but this problem. And it was great, creative exercise and actually was a lot of fun. But as a result, I modeled a profits interest plan, which is ownership but it’s not taxable when granted and it really fits well within the LLC structures that we have. And then I also modeled a long-term incentive plan, which is a lot like a bonus. If you hit certain targets over three years, you get paid a bonus. But it keeps people rowing in the same direction over a longer time.
The magic was when, in the fourth quarter, I walked the executives through the plans and particularly the model. And it wasn’t just the plans themselves, because ownership is nice but that’s what it is. It’s the matrix of the ownership and how it shows what’s possible. Because the presidents — they were already attuned to ownership in their own businesses. But the model was able to show what profits, interest and ownership meant to them personally when the other businesses performed well too. And it’s real wealth.
And I notice this now: They bring all themselves to meetings about the other companies. They actually invest in them rather than just in their own company. It’s a lot less myopic. We’re also investing heavily in a centralized but national sales organization. And without the model and buy-in and their investment, it would have been a lot more of a challenge to garner that investment.
Lastly, as we continue to grow — and have every year — we have a goal of spinning up additional businesses. Now we have this plug-and-play incentive program that we’ve applied to all of those new businesses.