This week, Dr. John Schnorr joins Griffin to break down what transpired when he and his colleagues found themself at the bottom of the Integramed fallout. What happened to his clinic and his patients through the unraveling, how did it influence his career path afterward, and what entrepreneurial venture did he undertake as a result- all on this week’s episode of Inside Reproductive Health.
Listen to hear:
What happens when another company is the employer of your employees-and they close their doors overnight-without paying you-or anyone else.
What considerations you should make before you enter into an agreement with any company- especially when the rules for assignment change drastically under the umbrella of bankruptcy law.
How Dr. Schnorr rose from this downturn, and continued down an entrepreneurial AI path which has the potential to significantly impact the industry down the line.
Dr. Schnorr’s info:
LinkedIn: www.linkedin.com/in/john-schnorr-md
Twitter: @JohnSchnorr1
Company: www.cycleclarity.com
Transcript
Dr. John Schnorr 00:00
They ended up going chapter seven, which has gigantic implications for the patients and for the fertility practices, because now they're going to disappear. And part of the thing that really challenged us the most is they had captured all of our revenue. So they had taken all of our revenue, they had all of our patient deposits. We didn't have any of our patient deposits. Patients wrote checks to Costal Fertility, they didn't write them to IntegraMed, we're not going to be able to go back to the patient and say, No, you made the check to the wrong person. You know, you need to pay us again, we had to, you know, provide care for service for monies we never received.
Griffin Jones 00:41
RIP Integramed. We go through what happened with Integramed from one practice owner's point of view the rebirth from that my guest today is Dr. John Schnorr. Dr. Schnorr finished fellowship from the Jones Institute in 2001. He joined a group called southeastern Fertility Center at that time as an employed physician became a partner there split off with a partner of his to form his current practice coastal fertility. They were an integrated practice. Now they're not they're independently owned. We talked about what that was like when another company is the employer of your employees and they close the doors. Almost overnight. We talk about the rebirth from that we talk about the landscape of of what it might be like to go with another group versus staying independent. Dr. Schneider has been involved in different entrepreneurial ventures. Now he has a venture focusing on one of his own pain points with the time that it takes for snog furs and other clinicians and other staff to go through the ultrasound process. We talk about that venture and the idea of moving forward as an entrepreneur as an REI. So hopefully this gives some career path ideas for some of the physicians listening and hopefully it also makes some connections. Dr. Schnorr. John, welcome to Inside reproductive health.
Dr. John Schnorr 02:11
Thank you. I'm excited to be here with you today.
Griffin Jones 02:13
I'm interested in having you because you're an entrepreneurial document involved in different ventures, you've been a senior partner in your practice. And so I would like to explore that business route. But let's maybe start with your timeline. You were you. You've been independent. You've been corporate, you've been independent. Again, you've you've been involved in other ventures. So let's start. Maybe not from the beginning, beginning but let's start after fellowship. How do you find yourself in private practice?
Dr. John Schnorr 02:44
Well, I start I did when did fellowship at a place called the Jones Institute in Norfolk, Virginia, came out in 2001. And then I came straight to Charleston, South Carolina, where I am now I joined it at that time, a practice called southeastern Fertility Center, who at that time was run by a physician, Grant Patton and I became an employee and eventually a partner at Southeastern Fertility Center. And it's in Mount Pleasant, South Carolina, which is one of the suburbs of Charleston, South Carolina.
Griffin Jones 03:12
Were you the first employed doc?
Dr. John Schnorr 03:15
There? I was not. So there was another employee doc here at the same time, who actually I think, was even a partner by the time I got here. So there were two partners at the time, and then I was an employed physician.
Griffin Jones 03:26
And how did you choose them? I know that we're used to a time where there are job openings all across the country. Dr. Chen and Dr. Lee have talked about times earlier than when you exit fellowship. Where are you guys? We're, we're delivering babies because there wasn't any job. So what was the landscape like in 2001?
Dr. John Schnorr 03:47
It's a good question. When I was getting out of fellowship in 2001, there was not a lot of demand for reproductive endocrinologist. So there weren't a lot of job openings. I did have a couple of different offers. I had two young daughters at that time. They're now older daughters at that now, but at that time, they're younger daughters, and I wanted a wholesome place to raise kids that I thought would be a good environment to live. Were from the West Coast. I'm from Arizona, but we just felt that Charleston had the right feel to it. And importantly, I wanted an academic connection. And I joined the Medical University of South Carolina part time while I was also a private practice physician at Southeastern Fertility Center, and eventually became the Division Director of musc. And I've now been their division directors since 2003.
Griffin Jones 04:34
So did southeastern become the practice that you're a part of today or did you leave in form another?
Dr. John Schnorr 04:42
No, it melted down in a partnership dispute around 2012. At which time we then started our own practice called Costal Fertility specialist I'm in right now. And I have thought for other doctors that I work with at Costal Fertility specialist.
Griffin Jones 04:59
So Did some of those folks that went on to start coastal with you were they at Southwest southeastern at
Dr. John Schnorr 05:05
the time, one of them was one of them was. So he was with me at Southeastern Fertility Center. His name is Michael slowy. He's from RMA in New York and came actually over to join us in 2009. And then in 2012, we together work to join to make coastal fertility specialist.
Griffin Jones 05:24
Were you a partner at that time at Southeastern? What did you learn from the partnership dispute that you decided, Okay, I'm going to make sure that we're we run our group as we move forward this way, what were some of the important lesson? Yeah,
Dr. John Schnorr 05:39
that's a fair question. It was a partnership, which was run by a physician who was probably 65 years of age when I came to town. And he wanted to continue working. And I think there was some reasons to believe that maybe we should part ways. And so we and the new practice called coastal for coastal fertility, elected that if you're greater than 70 years of age, you need to sell your shares back to the to the company and the company will then employ you at will if they feel that's the right thing to do. So that was one of the core decisions made for the new practice and the new practice. Kosta, fertility is very kind of socialized in a way that we share probably 60% of the revenue, and 40% of the revenue is based upon productivity. And that makes it so you're not competing against your partners, and you kind of it's all All for one and one for all but you still get rewarded for some productivity.
Griffin Jones 06:33
How did you learn to make a model like this? Was it all trial and error?
Dr. John Schnorr 06:38
I kind of thought a little bit about what what did I want out of a practice and I wanted a partner who was a partner, not a competitor, I wanted a collaborative effort. I tend to be a little bit capitalist by nature, that entrepreneur spirit is a little bit capitalist. And that's not my nature to have a socialized kind of approach to things. But I thought it would make it more comfortable and easier. And I think for a successful practice, there's plenty of money to give around. And if you were to craft some crazy, wonderful agreement, so you make an extra million or $2 million in your life. My bet is that doesn't change who you are at the end. And it's the partnership. It's the friendship, it's the collaboration, it's the fun, that changes who you are. And that's the spirit that I wanted to create. So we created a buy in practice, which is fairly easy to buy in because we wanted the best physicians, and we want it to be attractive for them to join us. I've been very lucky with the doctors who have joined me over the years.
Griffin Jones 07:33
So that started with yourself and Dr. Silva in 2012 2012. Dr.
Dr. John Schnorr 07:38
Slowly came in 2009. We formed Coastal Fertility Specialists in 2012. Don't quote me on the exact numbers, but Dr. Heather Cook joined us, I think in 2014 2015, she is now a full partner. We have Dr. Jessica McLaughlin who joined us, I think in 2019. She's now a full partner. And we're lucky enough to have Dr. Carrie Riestenberg, who joined us about three or four months ago, and she certainly on our partnership tract also.
Griffin Jones 08:07
So at what point did Integramed come into the picture?
Dr. John Schnorr 08:13
So when I was a partner at Southeastern Fertility Center, we I think my partner and I, at that time, agreed that administratively we were weaker than we were clinically that we were clinically probably a B plus to a minus grade practice. But administratively, we didn't have some of the skill sets to really administer a practice like that. We thought we might be a C or a C minus administratively. And so our senior partner that time was very interested in Integra med. And in 2007, we became partners of Integra med. The partnership at that time was what's called an MSA or a medical service agreement. That time importantly, entanglement was a publicly owned company that was traded on the stock market. There were probably 30 Other practices who are partners with Integra med. They got a percent of our net revenue, I think that percent was 6% of our net revenue or gross revenue, actually, they got 6% of our gross revenue. And then in that deal, they got 15% of our net profit.
Griffin Jones 09:16
Can we clarify medical service agreement for the audience? Because I think some people think especially maybe some of the newer Doc's think that Integra mat always had an equity model, like many of the networks today do and they did have that model. They did take equity in some of the groups that they worked with, but sometimes they also just had a management verb service agreement, and you talked about medical service agreement. Can you tell us about what that is?
Dr. John Schnorr 09:45
So it was an agreement of medical services that we were going to provide they kind of let us be the doctors and they were the administrators, they actually employed all of our staff. So our staff were no longer really employees of southeastern Fertility Center. They were employees of Integra. permit which will become important later on down the road. They actually manage all of our revenue, meaning that when a check was written to southeastern Fertility Center that got handed to Integra Matic, I put it into an Integra mat account and tigerman within pay all of our bills, and then the the income would come back to the doctors at the end. So whatever profit was available at the end, was given to the doctors got 85% of the profit and Integra mat got 15% of the profit. So that's how that agreement worked. And, you know, honestly, for the first couple of years, they did make us better, you know, they did provide advertising and marketing ideas, they provided management for our Executive Director, they provided decent health care benefits for the staff a better 401 K for the staff. I mean, for the first couple of years, it was good. It wasn't perfect. I mean, they wanted us to kind of you know, not be southeastern fertility as much as they wanted us to be in Tiger match. So there was some kind of loss of identity. And we weren't totally comfortable with that. And they tried to push things that we didn't necessarily want. But I think it's probably pretty typical in a relationship to have some give and take. And for the most part, I think integrity had made us better. And a lot of my business ideas and concepts now probably came from a lot of their teachings along the way.
Griffin Jones 11:16
And so for the folks listening, what you described, part of what you described is a professional employment organization a PEO on the employee side, when Dr. Schneider says that the employees were employees of integrity said that's actually very common. It's very common for organizations between, let's say, five and 200 full time employees to join a PEO. The PEO then becomes the employer. And they're the ones cutting the paychecks they have, because that PEO has 1000s and 1000s of employees, they get better deals on 401 K and health insurance, they broker that type of thing. And that's so that's very common for medical practices, law practices, any type of business between five and 200 people that you said that was it South Eastern, so does that carry over as you went and formed?
Dr. John Schnorr 12:08
Right? So that's a good question. So southeastern kind of melted down around 2012. And at that time, we were forming coastal fertility and Tagore. Matt wanted to be part of coastal fertility, not the old southeastern. And so we crafted an agreement to be part of integrity and moving forward. And that was a very conscious decision showing at that time and temperament was very good for us. We thought it made us better to be part of integrity and and we consciously elected to continue to be part of integrity and in 2012.
Griffin Jones 12:37
So this is still part of the years where, where it's going well for being in that relationship, when and how did things start to change? Yeah.
Dr. John Schnorr 12:47
So you know, the first we got when that things were changing a little bit foreign Tiger men was when they got purchased by a private equity firm. So a private equity firm, called safeguard and September of 2012, purchased all of the public stock that was available, and took Integra mat private at the time. So guard at that time, was a private equity fund, out of Montreal, and actually was owned by a publicly held company called Power Corp, which was also out of Montreal. And I remember very vividly when that announcement happened. We were at SRM and San Diego and they announced this new kind of sale where this was all going to be taken private. And the goal was to get all these additional revenues because they're now private, and then responded back out into the public service for sector for more money. And so everybody was kind of make good money off of that. And we had a big meeting about all of it. And, you know, one of my questions to them was at that time, Warren Buffett was a very kind of leadership person in the field of investment. I simply said, Are you guys buy in long term hold or are you kind of a buy and flip, and they said, we are 100% Warren Buffett, we are going to be in it for the long run. We got you guys got good leadership. Nobody ever says buy and flip do they buy and flip wasn't a word that happened. New Leadership did get brought in some very wonderful people got brought in to Houston, a lot of really neat people who kind of really helped get entanglement up to a better footing. I do think that there was some improvement over the first couple of years. But we started to know that notice that leadership started to leave over time. And so I'd have to think just kind of rolling out numbers 2018 2019, we started to see a lot of turnover of staff. I think I later learned that there may have been a lot of debt put onto Integra mat that they were servicing a fair amount of debt. And so there was a little less profit leftover and maybe some more challenges, kind of keeping things moving forward. So we kept noticing the people we used to interact with weren't there anymore, or they had more roles than they had before. So We started to over time and you know, 2018 2019 got less benefit out of Integra mat. So there'll be less marketing activity, there'll be less insights and people come in to teach us how to do things better. And so I think at some point, we started seeing diminishing return out of entanglement.
Griffin Jones 15:17
Do you have any insights as to why companies do that when they purchase a company that's listed on the stock market, they take it private, I can only think of a handful of examples, cigar doing that with Integra mat. My first employer was clear channel, which is now I heart media, and they were a publicly traded company. And then I believe the Marx Brothers purchased them and took took them back private. Of course, everyone's talking about Elon Musk and Twitter right now. And so those are the examples that I think of why what's the strategy behind that? Do you know,
Dr. John Schnorr 15:50
I think, I don't know for sure. But I think the strategy was to bring revenue in from other sources where, you know, you now have 30 practices, and maybe all 30 practices, which use the same genetic testing lab and they use the same pharmacy, should you be able to pull all this money together so that the revenue could increase, you maybe you can make decisions a little bit quicker than a publicly held company, and then flip it back out into the market once you really amass more income. So it was about making more money. And, and again, this was a private equity firm, who I think was primarily interested in just that.
Griffin Jones 16:24
And so it gets to be 2018 2019. You're seeing changes, then what happens?
Dr. John Schnorr 16:31
So, you know, we started, you know, having some dissatisfaction within our practice about Integra mat, but didn't take any action on that. It's my understanding that eventually Integra mat decided to put themselves up for sale, that over time, the company that owned regard called Power Corp actually had been writing down in their annual financial reporting. Between 2017 2018 I think they were writing down the value of Integra Mattis, who saw the value declining, and they would make statements that they've had some unsuccessful acquisitions and the costs required to reinvest in the company has lowered profitability, and they kind of lowered the value over time. And actually, they put themselves up for sale, I'm guessing 2019, certainly by 2020. They were for sale. And it's my understanding, they had a bitter, we're pretty deep in negotiations, right around the time that COVID happened.
Griffin Jones 17:29
And so then COVID happens. And I know some stories from other folks where they found themselves without a payroll company overnight, they found themselves without HR overnight. And, and as you talked about your employees were at that point in, technically employees of integrity read, so COVID hits and how does it unfold? So it
Dr. John Schnorr 17:53
was really tough for us. I mean, COVID was tough for everybody. But you know, right. When this started going, there started to be national recommendations that the fertility practice has stopped practicing fertility for a while, or at least slow down and what they're doing. And a lot of really great practice chose to do that. And I respect that decision. I mean, I totally understand that decision. But entanglement made their money off of the practice of reproductive endocrinology. So if you stopped seeing patients, you stopped billing, if you stopped billing, you stopped getting collections, if you stopped getting collections, the revenue was kind of dry up for entanglement. And I think they, they frankly, saw that coming. We were one of the practices that didn't stop seeing patients, we continued, we continued at the same pace. We added a lot of security measures, we didn't have any patients get COVID We didn't have any doctors get COVID. We did it safely. And very importantly, we did it profitably. We were profitable every single month. But what we started noticing is COVID kind of really hit around March, around April, we had vendors calling us because they weren't getting paid for the invoices they had out. We had vendors actually starting to deny us services because our invoices weren't being paid. And, you know, we would call Integra mat and say, look, we've been profitable, you guys know, we've been profitable, why aren't you paying our bills, and they would say, well, we're gonna pay your bills. And then we got to the point where they weren't paying the doctors, they were paying the staff, but they weren't paying the doctors. And so by April or so the doctors were digging into their own pockets, to pay the vendors so that we could continue to provide services, and they weren't getting income. So it was a double hit. We weren't getting income, and we were going into savings to try to pay the vendors and that culminated in what became a bankruptcy filing by Integra Med, which was in May of 2020.
Griffin Jones 19:45
And so at this point, you're you've got you got vendors coming for you, you you have to I guess make changes. And for those listening the bankruptcy that was filed in May of 2020 was chapter seven. And for those that don't know chapter For 11 means that you can restructure, you go through bankruptcy court you, you build a plan and you, you put your debtors in positions and you come up with a plan to pay them off and eventually emerge from bankruptcy. Chapter Seven has closed the doors. And so you get so in April, you're already having to dig into your own savings, you're already not getting paid, and then made 20 of those. Yeah. And now we're, we're gone. So how did you begin to replace the infrastructure?
Dr. John Schnorr 20:31
So and so you're exactly right, Griffin. I mean, when we started getting when that bankruptcy was a discussion, we went met with our local attorneys and told him what was happening and that this should be chapter seven. And I'm not kidding. They consistently laughed at us as a bunch of naive physicians, which we probably were that healthcare companies don't do chapter seven, they would do chapter 11. And then I was saying, honestly, I really think there's gonna be chapter seven, no, no, no, they're gonna do chapter 11. Here's how we're going to handle that. Well, they end up going chapter seven, which has gigantic implications for the patients and for the fertility practices, because now they're going to disappear. And part of the thing that really challenged us the most is they had captured all of our revenue. So they had taken all of our revenue, they had all of our patient deposits, we didn't have any of our patient deposits. Patients wrote checks to Costal Fertility, they didn't write them to IntegraMed, we're not going to be able to go back to the patient and say, No, you made the check to the wrong person, you know, you need to pay us again, we had to, you know, provide care for service for monies we never received. And adding insult to injury, they had a guarantee Money Back Guarantee program that they had sold to patients called IVF. Attain, in which the patient would receive a lump sum check, and be given up to three IVF cycles and your money back if you don't give birth. And those were contracts to Integra man, that we felt obligated as physicians running a practice to comply with. And so we ended up providing free care to a lot of patients who had paid us in advance, we never got any of the money and Tiger Man has the money, and we didn't receive any of it.
Griffin Jones 22:12
And how did you replace your your What did you have to replace in terms of the administration? How did you do that in
Dr. John Schnorr 22:20
everything, everything. So Griffin, within about two weeks, we had an EMR that was run by Integra men. We had all of our employees had to go over to coastal fertility, Costal Fertility had four employees at that time, they were the doctors, we had to absorb every employee, we had to actually get a payroll system put in place for all that we had to work our way out of that EMR into a new EMR along the way. And then we had a gigantic legal battle, which was on our doorstep, which we didn't see common either, which was something that became a formidable experience for us. So I have great partners, and everybody was divvied up with a task. One partners task was to find a new EMR and other partners task was to help onboard the new employees. And my task was to be part of this kind of upcoming litigation so that we could survive this.
Griffin Jones 23:13
And so you that that sounds like a great lesson and leadership, by the way of, hey, we've got five fires and four partners and associate or whatever, that or whatever it is, and and breaking that apart. And so as you're, you're you're coming through all of this, then I guess it starts to think about next steps. Were you thinking about how do we emerge from this at this point? How are we going to restructure or in these early months is it simply just keep the ship above water?
Dr. John Schnorr 23:50
Well, what I learned if I'm the first business, southeastern fertility is that when we were melting down, we believed at Coastal fertility, that the patient was going to get us through this, that the one who won the patients was going to win the revenue and was going to survive. And that was true for southeastern Fertility Center. And when we came to the bankruptcy meltdown, we decided we were always going to do what's right for the patient and provide the care that they paid for, even though we didn't receive the money. And so our vision was continued to provide great care, continue to take care of our staff who provide the great care, and along the way, figure out the rest of it. And so that's how we manage that. And there were some very down days and hard times getting through it. But we ended up frankly, as a better company than we were even while we were under entanglement.
Griffin Jones 24:39
So then you start to rise from the situation and people went in different ways. Some groups formed a new group together from entanglement. Some groups stayed independent. Some groups went all different kinds of ways. They sold to new networks that were coming they merged with the practice across time. And they sold to the dock that was in the other city and wanted to come to their city. And so how did you decide the route that you ended up taking?
Dr. John Schnorr 25:09
Right? So so that legal challenge that was presented to us is one that we didn't know anything about, which is that of course, and bankruptcy, the job is to sell the assets and then provide whatever money you get from that to the people who are owed money. And it was considered that an asset to the Integra man was our contract with integrity meant, meaning that in theory, our contract had value. And that value would go to the highest bidder, meaning that our contract would be put up for sale. And the challenge with that is that our contract have voting rights with it. So Integra mat got a full 50% vote at our meetings. So in theory, our contract could be sold to our competitor, who could then come into our boardroom and make whatever vote they wanted and force things to happen, because they outbid somebody else for our contract. And so that became uncomfortable for us. And we ended up working with some of the other practices who were part of Integra Med, in a legal effort to win our contract through court, unfortunately, is, you know, not by accident, bankruptcy was declared in Delaware, which is considered the state most favored for the bankrupt party. And so this all went down in the state of Delaware. And in Delaware, they appointed a trustee who was in charge of liquidating the assets. And the trustee, consistent with prior legal history, decided that our contract was an asset and our asset was going to be put up for sale. And we had to fight that and we had to fight that so that we could become close to fertility itself, not part of another person who could be our competitor or necessarily somebody that we didn't necessarily want to work with. And that became a formidable challenge for us and legal dispute that probably lasted upwards of six months.
Griffin Jones 27:03
I'm not a lawyer, but it sounds to me like the argument would be breach there. No, that's
Dr. John Schnorr 27:09
right. What and our contract it said that you couldn't assign our contract to somebody else. But in bankruptcy court, you can throw that out. So in bankruptcy, a lot of normal contractual agreements can be thrown out of the contract. And the way we want it is actually through a tennis star. So this is kind of an interesting story. It turns out that I think it was Andre Agassi. I'm not totally sure about this. But he had a contract in which he was going to do marketing for a sports apparel company. And that sports apparel company went bankrupt. And his contract with a sportswear company got sold to another company, for example, Danny's. So now Andre Agassi was going to have to mark it for Danny's, for example, and I kind of made up Danny's instead of the sports apparel company. And Andre Agassi argued that that's a personal service agreement. And appropriate personal service agreement is an agreement that involves a relationship of personal trust in which the character reputation skills and discretion are necessary to render that performance. So he's basically saying I agreed as a tennis star to work with a sports of our company, I didn't agree to work with this restaurant, and therefore you can't give this contract to the restaurant and in court. And that legal challenge, he won that. And so that was a precedent by which our attorneys argued that in some ways, the physicians are performers with specific skills and talents involving personal trust relationships with the patients, which require character reputation, skill and discretion, and therefore, assigning that to somebody else would be an appropriate plus, considering that who you're assigning it to would get 50% vote in your practice. Fortunately, the judge saw that favorably in our way, and agreement was crafted in which we got to get our own contract back, we essentially bought our own contract back. And we bought it by providing the free care to the patients and honoring the shared risk agreements that were already put in place by Integra med. So I think the judge wanted to be fair for the doctors, but also fair for the patients. And I realize I'm a biased person in this discussion, but it seems like it was fair, and that the patients did well, and the doctors got the contract back and got to run their own practice.
Griffin Jones 29:33
Listen to that doctors, you might never have thought that you could someday have a career parallel because of Andre Agassi. And yet, and here it is. That's fascinating. You could you've ever predicted something like that would have an impact. And maybe you read that years prior in the Wall Street Journal or something and thought, Oh, that's interesting. And you flip the page on to the next story and And lo and behold, it's Sunday, it has tremendous significance.
Dr. John Schnorr 30:03
I mean, what I was really impressed by the leeway bankruptcy judges have that they can take things you agree to in your contract and say, No, we're not gonna honor this, we're not honor that, like literally in our contract said you cannot assign this to somebody else. And bankruptcy court, they say now that doesn't exist, we're going to take that out. So the ability to rewrite agreements during bankruptcy, I'm sure there's good legal reason for that. But it's something that I didn't understand. And I didn't understand that our contract would become an asset that would be up for grabs. And so that was a little bit of a journey and stressful at times. And, you know, we kind of got through that and got our own contract back and to be able to function at Coastal fertility on our own and done very well with that.
Griffin Jones 30:45
That is fascinating. I wonder if there is ways of crafting language for bankruptcy courts or for that potential contingency? Oh, I have to bring a lawyer on the show to talk about that. But I wanted to ask you, what do you suppose the conventional wisdom was behind when when advisors and and lawyers said Ah, there's that they won't file for Chapter Seven everybody files for chapter 11? And health care? What do you suppose was the the logic behind them thinking that
Dr. John Schnorr 31:18
why they went chapter seven instead of 11?
Griffin Jones 31:20
No, not the not not entanglement, filing Chapter Seven, but rather wide? Why good counsel, that that Utah lawyers, advisors, people that know the business? Well, while they were almost certain that they would file for Chapter 11, thinking you're crazy for thinking that they would file for a Chapter? Well, I
Dr. John Schnorr 31:37
think it's because 98% of the time, they're right in chapter 11. So I think it was just based upon the statistics and how uncommon it was for a healthcare company to do chapter seven.
Griffin Jones 31:46
And is that simply because healthcare tends to be better pay, they tend to be able to get lines of credit more easily, or, or, or get revenue streams back online more easily. And let's say it's an entertainment company, it could be, it could theoretically be anything, it could maybe it's maybe it's a bust brand, maybe it's a,
Dr. John Schnorr 32:06
I'm guessing that the margins were thin enough that they didn't see profitability, and a new company realizing you can wipe away the debt, the margins were still thin enough, and they were challenged enough that they didn't think it was going to be a viable company, even after bankruptcy.
Griffin Jones 32:21
So then some people form a new group other people sell to other groups all over the place, some people merge. So far, you have remained independent, is that right? That's right. That's right. Is that for the foreseeable future? Or? Yeah, that's
Dr. John Schnorr 32:39
a good question. I and honestly, I have a lot of discussions with my current partners, that I think being part of a network can have a lot of positive effects. I mean, we know the negative stuff now after going through all that. But I think the positive is the collegiality, the meetings, where everybody kind of meets together the new freshing ideas about marketing and administrative support, and maybe negotiating on insurance contracts, I think there can be a lot of benefits. And so I still see those benefits, but we also see some of the dangers along the way. And, you know, I think that the important thing that I learned from this is that, you know, venture capital can be good private equity can be good, I'm not against them at all. I think there's some great examples of that being successful. But I think the most important thing is whatever you get into make sure that your interests are fully aligned, that sometimes they're not aligned. And if they're not aligned, if one person is about the money, and the other is about the patients. I think that's right for challengers. I also think it's important to control your own revenue. I think one of the challenges we had is we weren't capturing our own revenue. I think one of the things we did well is we maintained our brand identity, and our reputation and our brand loyalty. So when we did separate from Integra mat, they still knew who coaster fertility was. And I think having an out in your contract keeps it fair, I think it keeps it honest. The ability to have a divorce kind of keeps everybody interested in working together, knowing that somebody could leave if it wasn't working out. So you know, contracts that are quote, evergreen and go on forever without an out. I'm leery of those type of contracts. I think those are contracts that have challenges with them. And I do think all contracts should prohibit assignment. Now. We talked about that not being helpful in and bankruptcy core, but maybe at some level, it's nice to have that around so that they can't assign your contract to somebody else.
Griffin Jones 34:38
We've talked a little bit about that on the show before having an assignment or no assignment clause. Does that preclude some folks from from wanting to buy in to a fertility center though some companies from wanting to buy a fertility center if there's no assignment because hey, if my goal is I want to flip this and three and a half years, I have to be able to assign I have To be able to sell. So would would, could that potentially diminish the multiple that someone received on their EBIT? Da? I guess it makes sense. Well, that's one that that's a possibility. But for all the reasons that you brought up, it's something that you really want to think about. And especially because I'm, I'm completely speculating, but now we have how many networks 910 11, some, some, somewhere around that ballpark somewhere. But I attended 12. And a few years ago, we had a few, I don't think we're going to have 10 to 12. For a while, I don't think we're going to have 18 to 20. Even if we do get close to that number for a little bit, I suspect that these folks are going to be gobbling each other up pretty in the relatively near future, because eventually, there's just not enough practices to buy. And the only way that you're going to be able to acquire other practices is by acquiring the parent company. And in your case, I, I don't need to, to tap your phone calls, I know that you're getting I know that you're getting calls because you're a five Doctor group, and you're in a non mandated state and you've run it so profitably. And so what what is made you not say yes, up to this point?
Dr. John Schnorr 36:15
Well, and so we have received a lot of a lot of calls I know every practice has. And there are some that were interested in and some were not the ones we're more interested in, have a more collegial aspect, which will be kind of they present a toolbox of options, and you choose from the options you like. And if you don't like some of the options, you don't do it. And they give you a little bit more autonomy along the way, and you get to control your own revenue. And, you know, those are the models, we tend to like a little bit more. And so we're continuing those discussions. But we're still very early on in any of those discussions.
Griffin Jones 36:48
Well, let's talk about other entrepreneurial threads that a physician can pull, whether they own their own practice or not. But I have often thought that when you either work for a company or you own a company, you get to at least form a good hypothesis for what could be a market need based on your own challenges. And so you have done that in the in the cinematographer space and, and perhaps others, but I just like to hear about what you're delving into now and what got you into it.
Dr. John Schnorr 37:24
Right. So I've always kind of had a little entrepreneurial spirit, and I've always wanted to try to make the world a better place. I'm the guy who was always trying to think about what's the pain points now and how do we make those pain points better? And I've always found I remember back in my fellowship days, one of the pain points was doing ultrasounds of follicles. That when we were doing that I was the doctor considered measuring big. So whenever they looked at a measurement that snorted, they would say, well, it's you know, he measured 19 millimeters is probably 17. Or, you know, they would always kind of discount my measurements. But we'd have other fellows that they said, Well, he measures small, so we're going to add to him. So we're always kind of using these kind of fudge factors and kind of measuring follicles, and also thought it was a fairly tedious process measuring these follicles. And so around 2019 or so I was reading The Wall Street Journal one morning, and there was a big article that showed that artificial intelligence and this prospective study was able to identify breast cancers as well or better than radiologists looking at the same mammogram images. And those images that were put up honestly, I looked at I couldn't figure out where the breast cancer was right. I mean, a reproductive endocrinologist don't have a lot of training in that. But AI is seeing this breast cancer as well or better than radiologists. So I thought well, to me, that's fascinating, right, a second pair of eyes on a breast cancer very important. What could it do in the space of reproductive endocrinology. And it dawned on me that maybe we could use ultrasound and apply artificial intelligence to the ultrasound images, so that we can identify and measure the follicles within the ovary with the benefit, maybe we can do it faster. But also maybe we can standardize it. So there aren't people who measure big and small, they're just people who measure kind of that standard measurement. And so, you know, being the entrepreneur, I didn't want to put a lot of money into without seeing if it was, you know, patentable or already patented by somebody else. It was open space, we were awarded three patents and the ability of artificial intelligence to see follicles. We then went in search of an artificial intelligence company who could help us do this. And of all places in the Ukraine. There is an artificial intelligence group that was measuring with artificial intelligence when the football went across the line. So they're able to track a football going across the line. They're working with backup cameras from cars, they were doing a lot of really neat things. And they thought that they could help us with this project. So we started a pilot project where we just looked to see if we could do this and track a follicle. It turned out to be successful. And then with a whole team of annotators, literally, we annotated 19,000 Varian images, they had over 90,000 follicles where you're showing repetitively where a follicle is within the ovary so that artificial intelligence can learn what a follicle is and what a bladder is, and therefore more accurately read the ultrasound image of the ovary.
Griffin Jones 40:24
How did you find the team to work with in the Ukraine in Ukraine is at this point, are you are you googling artificial intelligence developer
Dr. John Schnorr 40:33
and started with Googling, and then have friends who are in the space who were using AI and maybe the legal field and other areas who would point me in directions and, you know, we would kind of interview each other to figure out what they've done in the past talk to their references can figure it out, and then put a small amount of money into it to figure out if they can actually get a private pilot off the ground and see if it's successful at an early level, it was very inaccurate, early on. But the proof of concept that we could track a follicle and see a follicle and discriminated from the bladder was what I needed to know. And when my belief was, as I annotated more and more and showed it more and more, it would get more and more accurate. And in fact, that happened to the point that our accuracy rate went to above 92%. With a dice score, which in artificial intelligence is the way you measure the accuracy. It's a combination of accuracy, precision, and recall, that gives you this dice score. And to get a dice score above 85% is good. We got up to 92% by annotating over 90,000 follicles now, that was a mind numbing process. And I reviewed every one of those annotations to make sure they were done accurately so that we had an accurate platform on the other end.
Griffin Jones 41:44
Are you bootstrapping at this point? Are you talking to VCs? So and and even now are when you said you've got patents, I immediately thought oh, they love patents on Shark Tank. Every time somebody uses the word patent on Shark Tank, the sharks get reengaged. And so that made me think of venture capital are you talking with with VC now? Are you hoping to continue to bootstrap?
Dr. John Schnorr 42:07
Yeah, certainly, we'll talk with anybody it's been bootstrap now. But we'll talk with anybody. The challenge that we didn't see common Griffin, was that the FDA considers software that reads a medical device or medical image, it considers that a medical device. So the FDA says that they have to regulate our software just as if it were a hip implant. So that was a challenge. We didn't see common. We ended up doing five clinical trials to prove to the FDA that we had an accurate safe product. And we received FDA clearance in January of 2021. So this is now a product that's available on the market called cycle clarity.
Griffin Jones 42:48
And so at now, you're beginning to to unroll the product did start with using it in your own practice was was getting your partner's to adopt a part of you. I mean, when you were when you were quality checking the AI, you were doing it yourself. But in terms of adoption, were your partners, the first people that you are trying to get on board.
Dr. John Schnorr 43:12
And so you're right. So the FDA is jurisdiction is you can you write your own software, you can use your own software, but you can't sell your software until you get FDA approval. And so we have been using this artificial intelligence application since kind of early 2021. And so it's now been functional at our office for a significant period of time. And I have great partners who I think probably were a little leery at first with what I was doing. And they kind of gave me a little leeway. And I think now they look at this is an indispensable resource within our practice that it allows us to do a variant ultrasounds that take 10 seconds per ovary, literally, you put the probe in, you push the button, it scans to the ovary, it feeds the results directly to the EMR, it does the same to the left ovary. And what an ultrasonographer will do is they'll come in the morning, they'll do maybe 20, back to back ultrasounds each taken a minute, two minutes, three minutes, around 10 o'clock. Once their morning's done, they're gonna review each of the images takes about a minute to review each image, and then it gets put directly into the EMR, what my partners will tell you the greatest value is or the second greatest value is that anytime any day they can review every one of you have any images from top to bottom to make sure as accurately read and try to correlate any differences between estrogen levels and progesterone levels. It gives a second look a second opinion. And I think they would tell you that's probably one of the greatest values.
Griffin Jones 44:44
Have you ever done a side venture like this before where the where it wasn't just the main business in your main business being the practice? Have you done ventures like this that aren't the main business in the past?
Dr. John Schnorr 44:58
I have I was fortunate to be part Part of donor egg bank USA, which I've learned a lot from Michael Levy, who is a great person and created a great company with Heidi Hayes. Prior to that, I had written some software for OB GYN training for their board examinations. And so there are many different times when I've kind of done things on the side that have been beneficial. And I've enjoyed that I enjoyed making things and building things, and watching it grow in a way that you're impacting millions of people, rather than that one person in front of you as a physician day in and day out.
Griffin Jones 45:29
What big differences do you perceive, if any, between starting a venture in a space that's relatively unexplored? It's it's, it's a new technology taking over for something that is analog and inefficient, versus starting a proven business model, like an REI practice? What differences do you notice it's the
Dr. John Schnorr 45:51
risk model and the lack of guarantee, and it's the capital investment. I mean, a lot of capital was invested in this artificial intelligence company, where probably somebody would have given us a 5% chance that we can even create a platform that works much less read it accurately. So I imagined going into this, it didn't look like this was going to work very well. But as it started to build, and we got more and more smart team members involved, who all had their own expertise, I mean, we have a chief technology officer who's amazing senior engineers that are amazing. We have a data scientist specialist, we got a Chief Operating Officer, we have medical device reps, who are integration specialists. We're now in seven different web contracts with all the large major networks except for one. And we're in seven different locations, we have 17 different offices. And right now we have over 45 different people doing ultrasounds. And importantly, they all offer Sam with the same degree of accuracy because there's AI doing it. So you know, the benefit becomes, you no longer need to be a physician working at the bottom of your license doing, you know, follicular ultrasounds, you can be a medical assistant working at the top of your license with cycle clarity, getting the same measurement accuracy as to reproductive endocrinologist, while the reproductive endocrinologist is now seeing patients. And our own studies show that we'll say four hours of physician time per day, four hours per day, for a clinic doing 1500 or more cycles per year, and IVF, allowing you to see more patients to maybe do more surgery, do more retrievals and let the medical assistants do or even the ultrasound ographers do the scans. And then if you have any questions about it, when you do STEM review, every one of those event images will be there for you to see from top to bottom.
Griffin Jones 47:39
I've recently had Dr. David sable back on the show. And the thesis behind his investing strategy is that we have to be able to expand the number of people that are served by art in the country and worldwide, and that the quality cannot decrease as cost decreases that the current standard for quality has to be the standard cost needs to be lowered from there. And technology lifecycle clarity has to be a part of that solution. It sounds like what you're working on has a piece of that really well thought of. But when I see challenges of models like that being adopted, it has to do with clinic workflow, and that there's just so much variance in clinic workflow, that there have been really good tech solutions, and some of them are still out there. And some of them are being adopted, but many of them not as fast as I think that they probably ought to be. And it's because there's so much variance in clinic workflow. How do you overcome that?
Dr. John Schnorr 48:45
Well, and I think you're I think you nailed it, I think our greatest challenge is synthesis change. And even though it's positive changes change, and change is hard. And change takes inertia. And it's got to be painful enough that you make that change. And so our job is to find clinics with good leadership from the physicians who say this is going to be a positive change moving forward. We're going to implement this we want to you to put effort into this ultrasound, ographers gnamaize, and physicians to make this work. And with effort we've been able to show it coastal fertility and now seven other centers that it works very, very well. And at Coastal fertility. What matters the most is the number of eggs retrieved. The maturity of the eggs retrieved the fertilization rate, all the embryology endpoints that matter the most were unaffected or improved by using artificial intelligence. So this application can help you forecast when to do the egg retrieval when the most number of embryos are going to be there and how to improve pregnancy rates. And importantly, it uses the center's specific own embryology data through our data science experts and artificial intelligence to figure out when the best time is for each particular clinic.
Griffin Jones 49:52
Do you see yourself moving into this type of entrepreneurial role full time and I didn't just I don't just mean like real clarity, I mean, you could probably sit down and write down all of the pain points, the analog pain points that you have, as a practice owner as a clinician, you maybe you already have written them off. And you could just start saying, well, now I can work with AI developers on this problem and on this one, and so do you see yourself doing this full time?
Dr. John Schnorr 50:21
It's it's a great question. I love being a physician. And I think ideas come because you're a physician, you're currently seeing patients and you're seeing the pain points, and you're able to evaluate your own product and your own clinic. So I never see a time in which I'm not a majority physician. But you know, could there be a time when I dedicate more time to kind of maybe cycle clarity other things? Yes, I mean, that's a possibility. But I always want to have a significant part of my time being take care, take care of patients. That's what I love.
Griffin Jones 50:49
You got to keep the sauce sharp. John, you've given us gold in this episode, I think a lot of the young doctors are really going to get a lot out. But I think a lot of your colleagues are also going to and I hope that there's somebody that you used to talk to a lot that you just haven't in a little while that says, you know, I want to reach out to John and say, I enjoyed it. I hope I hope somebody does that. That's my pious hope. The only difference between a sinner and a saint is a pious hope. But how would you like to conclude knowing that most of our audience is there are a lot I would say if there's 150 fellows that at some point, maybe 50 of them are listening, there are a lot of young Doc's, the biggest segment is is partners of practice. And then the next is is C suite. So you've walked us through an entrepreneurial path for Rei is how would you like to conclude,
Dr. John Schnorr 51:40
I would like to conclude that we're blessed to be featured in the field of reproductive endocrinology, I mean, what a special place where and to help couples have kids and families that they wouldn't otherwise have. And I just as an entrepreneur, always wanted to make the world a better place. Whether I'm making it a better place because I'm working on environmental concerns or method. Maybe I'm trying to invent a better speculum, or maybe a better way of doing ultrasounds. I think we should all just work on our own little niche of our world figure out what our talents are individually and how we can apply those to patient cares to make the world a better place.
Griffin Jones 52:14
Dr. John Schnorr, thank you for coming on inside reproductive health. Hope to have you back. Thank you.
52:21
You've been listening to the inside reproductive health podcast with Griffin Jones. If you're ready to take action to make sure that your practice thrives beyond the revolutionary changes that are happening in our field and in society, visit fertility bridge.com To begin the first piece of the fertility marketing system, the goal and competitive diagnostic. Thank you for listening to inside reproductive health
