Measuring success in business usually comes down to one question: are you making money, or losing it? In the face of declining payer payments and staffing shortages, staying in the black on your balance sheet is becoming ever more difficult for rehab therapists. That’s why we’re seeing more clinics look to a hybrid business model (not to be confused with a hybrid care model) to help stay afloat financially.
Embracing a hybrid business model can help clinics grow and reach more patients, but implementing one comes with no shortage of compliance questions. So, to help shed some light on the subject, we spoke with Brian Gallagher, PT, Founder and President of MEG Business Management, to give you some need-to-know pearls about how to make a hybrid physical therapy (PT) business model work.
What is a hybrid business model in physical therapy?
The classical fee-for-service (FFS) model that defines in-network insurance is rendering many practices insolvent, forcing them to seek out new revenue sources. To combat this, some practices have gone the route of offering cash-pay services only, or being fully out-of-network (OON) with insurance providers. Unfortunately, those approaches risk alienating patients or even tightening the pipeline of referrals.
With a hybrid business model, which Gallagher suggests could be 80% traditional insurance reimbursements and 20% cash-based, wellness, and other services, therapists gain access to additional revenue streams—and an expanded pool of potential patients. And as Gallagher outlines, that greater access allows you to take your clientele on a journey from patient to fitness member to a maintenance program, and capitalize on the fact that “the top 10% of clinics in America have 65% of patients coming from return business.”
What are the best practices in converting to a hybrid model?
Once you have decided to go hybrid, there are some best practice guidelines to follow to make this a smooth transition. Managing a hybrid PT practice should not be all that different from starting a traditional private practice clinic, and the first step to getting off the ground is creating a business plan, and a plan for implementation.
Design the right model for you.
As Gallagher laid out in this blog post, the business design of your hybrid clinic can take on several forms. For instance, subscriptions or membership plans (i.e., silver, gold, and platinum) are a great way to segue patients from the insurance model to the cash-pay one once they complete their episode of care (EOC). Or you can go the a la carte route and offer individual cash pricing for one-on-one wellness sessions, personal training, dry needling, or recovery services. We should note that patients with OON insurance still have rules to follow—like a fee schedule—but payment for your services can come from several avenues.
Draft a pro forma.
What’s a pro forma? According to this blog post from Harvard Business School, a pro forma “leverages hypothetical data or assumptions about future values to project performance over a period that hasn’t yet occurred.” In other words, you’re mapping out how your hybrid model would bring in revenue—and how much revenue—over a certain period of time, and comparing that hypothetical projection with your current model.
Your hybrid model’s pro forma should outperform the traditional one. When creating a pro forma, it's important to keep in mind that the revenue percentage from in-network insurance will remain the same, but will be augmented with cash-based models and OON insurances.
Communicate one clear message to patients.
Figuring out how to get patients into your hybrid clinic requires one marketing approach with a clear message that will help both sides grow, and knowing how to do this is critical.
Nurture one practice to grow the other.
One big pitfall some hybrid practices have fallen into is adopting the wrong marketing strategy. As Gallagher states, “One of the biggest mistakes I see is people opening 5,000 square-foot clinics with astroturf [and] wellness/fitness services, then marketing direct-to-consumer while also focusing on growing the traditional physical therapy patient population—which means they’re now spending double the money on marketing.” Instead, Gallagher recommends focusing on marketing to one segment, and then letting that one drive internal referrals and buzz for both businesses.
For example, if you serve a large Medicare population, then your marketing efforts should hone in on these patients and their in-network benefits. Once they reach a point of discharge, they can roll into your cash-pay membership plans or other hybrid offerings. Conversely, if your clinic is surrounded by a population that places increased value on wellness and is willing to pay out-of-pocket for these services, then market to this group while still accepting in-network referrals.
How can you ensure consistent quality of care?
Just because one of your affiliated businesses is in-network and the other is cash-based does not mean that the quality of care should be different. Regardless of the patient type or payer source, PTs should always be practicing to the top of their license. To help rehab therapists continue their outstanding care into a new business model, here are some considerations to keep in mind.
Get your staff available and ready to engage.
You’ll need to embrace a bit of flexibility with your staffing hours depending on the demands of specific patient and payer types, including hours of operation as well as patients’ frequency and duration. Being available during non-traditional work hours may be a necessity for some patients, while the providers that treat primarily Medicare patients can opt to hit the mid-day sweet spot many seniors love.
Providers will also need to adopt the right mindset to treat a variety of patients. Cash-pay patients, for example, may have the assumption that their treatment will be provided by a seasoned practitioner, perhaps with a specialization. Traditional PT patients, on the other hand, may be less concerned with experience or title than the quality of care they’re receiving.
Educate staff to empower patients’ decisions.
Once patients are in your clinic—whether by happenstance or your own efforts—you want them to be able to make an informed decision on whether they choose insurance or cash-pay services, and the compliance implications of each choice. That means your staff needs to be well-versed on the pros and cons of each option so that they can help educate patients to make the right decision for their treatment.
Patients with high copays or deductibles are a perfect example of how a little education can go a long way. When faced with insurance plans that—let’s face it—don’t cover much, the cash-pay option becomes even more appealing. Better still, the patient now has a sense of empowerment and ownership in their own health by making these types of decisions.
Additionally, the therapeutic alliance between patient and therapist offers a perfect bridge to transition a patient from traditional PT discharge to cash-pay continuation-of-care services. The trust and relationships built over the course of an EOC is a real connection patients feel with their providers that can be used for further engagement.
Develop effective communication and collaboration strategies.
Change is hard for most people—even change for the better. But you can form strong relationships with employees and get everyone on board by engaging in these strategies:
- Answer the “why” for creating a hybrid business;
- Involve your team in the transition process;
- Set measurable goals;
- Celebrate team wins; and
- Regularly circle back with your team.
Provide comprehensive training and support.
Your hybrid PT practice needs to include ongoing training and support to keep therapists and front office staff fully engaged in running a hybrid business. Understanding the different nuances to in-network and cash-pay options will require staff to know:
Encourage feedback for how your hybrid PT business is performing.
As you venture into this brave new world of revenue diversification, remember that every business should always be looking to improve. Use and leverage NPS scores and Google reviews to provide valuable insight to your pain points as well as elevate your marketing game. And allow teammates to give feedback on the successes and shortcomings of your business, which in turn will foster intrapreneurship for all income verticals.
Don’t get caught with your regulatory pants down.
As with any business, regulations and laws apply. Although you should have most boxes already checked in your private practice’s business plan, there are some key compliance issues with operating a hybrid business you should know about.
- When offering in-network and OON services under one insurance carrier, two tax identification numbers (IDs) are a necessity for insurance contracting and credentialing.
- If your company plans to offer in-network and OON services under the same insurance carrier, they need to have separate mailing addresses and business names to accompany the tax IDs. Having two separate physical spaces (e.g., suite A and suite B) is the preferred option to avoid any regulatory hiccups with Medicare or other payers.
- Providers treating patients under the in-network insurance tax ID should be enrolled as Medicare providers, while therapists serving OON/cash-based patients would be non-participating providers with Medicare.
- If a patient with Medicare wants to pay cash for services, they can only do so for non-covered services, at which point an advanced beneficiary notice (ABN) should be issued and signed. There are some loopholes to be aware of, but as Dr. Jarod Carter explains, check with a compliance attorney before proceeding.
Physical therapists have been clamoring for a solution to regulatory and insurance woes for years, and here it is. Hybrid PT business models are just the type of creative thinking every business should do to stay in the game. Getting your staff and business plan on the same page, while marketing and nurturing one practice to grow the next, will allow you to take what in-network insurances offer and meld it with the versatility of cash-pay. In doing so, clinics everywhere can position themselves for long-term success.