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How Does Insurance Work from a Private Practice PT Perspective?

Do you know how insurance works from a private practice perspective? Check out this blog post to learn more.

Courtney Lefferts
5 min read
July 27, 2015
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As a private practice physical therapy provider, you’ve made—and have yet to make—a number of decisions. Some of these decisions are easy; others, maybe not so much. For example, choosing which ice cream flavor to eat on a Friday afternoon might prove to be one of the toughest calls you have to make in your career. But no matter how hard the decision might seem, you don’t need to be afraid to pick a stance: You just need to do some research. And while I would love to help you come to an ice cream flavor resolution, I’m here to talk about insurance from a private practice perspective. Should you treat in-network only, or should you expand out of network? Furthermore, what does that actually mean? To help you answer these and other questions, here are some points to consider:

In Network

According to the APTA, “third-party insurance continues to be the most common source of revenue for physical therapists' salaries, regardless of site or setting.” Why? Because your salary has to come from somewhere, and if you negotiate your payer contracts appropriately, you have a built-in referral source along with fair payment. In this post, I’ll focus on private insurances and their typical structures. If you’re mostly interested in whether you should enroll with Medicare, that’s a whole other ball of wax. For more information about that process, check out this post and this resource.

Payment Structure

Fee for Service (FFS)

In private practice, FFS is a payment model that—at this point in time—is one of the most common. However, that’s all expected to change as insurances adopt the pay-for-performance reimbursement model. But as it currently stands, FFS allows providers to report for services with corresponding codes. The payment rate for each of these codes is determined by a particular payer’s fee-schedule. Negotiated during the contracting process, this payment rate is either fixed or based on an agreed-upon percentage. With this payment structure in particular, you’ll want to be sure you code for all of the services you provide; that way, you avoid both under- and overbilling. (Hint: An EMR can help you code more accurately.)


When a therapist wants to become an in-network provider, he or she must go through both the credentialing and contracting processes. You might be wondering if your credentialing is permanent (like your NPI). Unfortunately, it isn’t. Credentialing isn’t permanent for the life of your payer contract. Each payer requires re-credentialing at a frequency determined by the contract terms and applicable state laws.

So, what all does the credentialing process entail? It involves verification of the therapist’s

  • licensing,
  • education, and
  • training history.

Insurance companies use this information to validate whether a therapist is a candidate to provide care for patients covered under that particular carrier. Once a therapist is credentialed, he or she must then go through the contracting process with the payer.  

Contract Negotiations

Payer contract negotiations can make or break your bottomline. To make sure the negotiation works in your favor, you must prove your value to your payers, have confidence in navigating contract language, and prepare yourself to talk numbers. According to this Advance Healthcare Network article, “Negotiating insurance contracts is probably the most time-consuming, labor-intensive and difficult responsibility for private practice owners and administrators. But it's an integral component to the success of your practice.” In order to prepare, you need to consider these five points (as adapted from the same article):

  1. educate yourself,
  2. set your price,
  3. set reasonable and realistic goals,
  4. watch for pitfalls, and
  5. be willing to walk away.

Contract negotiations are no joke, and that’s why we’ve written a two-part post to help you go into these negotiations feeling prepared. Check out part one and part two for more information.


Once you’re credentialed—and you’ve contracted with your payers “like a boss”—you might be wondering what happens to your claims after you’ve submitted them. Here’s the jist: The claims go to an intermediary—clearinghouses. Clearinghouses check for claim errors and verify that the claim is compatible with the payer’s software (which typically requires an enrollment period before claims can be submitted successfully). Additionally, the clearinghouses review and validate submitted diagnosis and procedure codes before sending them to the payers. This is why the payment process can take some time. However, it’s in both your and the insurance company’s best interest to have an impartial source review claims before payments are issued.

Out of Network (or Cash-Pay)

If jumping through insurance hoops doesn’t sound like an appealing option—and you’ve determined that your demographic area supports an out-of-network practice—taking cash-pay patients might be a good fit for you. If you decide to go this route, you’ll want to hash out the legal ramifications and get in contact with a financial advisor/accountant. For more tips on how to take your practice out of network, check out this blog post.

Payment Structure

Patient Payment (or Self-Pay)

According to the APTA: “This type of payment usually occurs if the physical therapist does not have a participating agreement with the patient/client's insurer, the existing benefits have been exhausted or the service is not part of the benefit package.” If you decide to take your practice out of network, all of your clients will be self-pay. However, that doesn’t mean they won’t ask to submit an invoice to their insurances. This means that you’ll need to be up to speed on the latest documentation and billing requirements. Keep in mind that things work a lot differently with Medicare. To learn more about issues facing cash-based PTs when it comes to Medicare, take a look at this awesome post by Ann Wendel.


Cash-pay might be a flexible option for you, but you have to consider that some patients are unable, or unwilling, to pay for services out of pocket. This APTA article offers the following advice: “Keep in mind that if a patient can receive the same value or same service from an in-network provider with no out-of-pocket cost, he or she will likely choose to stay in-network.”

The Best of Both Worlds

If you don’t feel ready to make the jump to cash-pay only, you could try to get the best of both worlds and become an in-network provider offering cash-pay services. Want to learn how to expand your practice? Check out this blog post.

After considering all of these factors, what’s a PT to do? I say go with The Tonight Dough. Because honestly, who can say no to caramel and chocolate ice creams with chocolate cookie swirls and gobs of chocolate chip and peanut butter cookie dough? I wish I could help you decide whether to treat in- or out-of-network, but this is one decision you’re going to have to make on your own. I wish you the best of luck—and a future full of ice cream.


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