All you physical therapy private practice owners and providers can take a collective sigh of relief, because independent PT practices are most definitely not going extinct. There will, in fact, always be a demand—and therefore a thriving market—for private practice PT. However, current trends in physical therapy—as well as the healthcare industry at large—do indicate a shift, and large physical therapy companies are beginning to buy up smaller organizations. As WebPT President Heidi Jannenga explained in this Physiospot article, “physical therapy is ripe for consolidation,” which means private practice physical therapists have some decisions to make regarding their future. With that in mind, here’s what you need to know about where private practice physical therapy is heading:
The Data
WebPT conducted an industry-wide survey and collected more than 5,200 responses from rehab therapy professionals.
Earlier this year, WebPT conducted an industry-wide survey to gain a clearer understanding of the state of rehab therapy—and we received more than 5,200 complete responses from rehab therapy professionals across the country representing a balanced mix of WebPT Members and non-Members. As I mentioned in this blog post, “this type of large-scale data collection and analysis” has enabled us “to produce a comprehensive snapshot of the rehab therapy industry’s demographics, trends, frustrations, and motivations, all of which shape the industry’s future outlook and potential for success in the new era of health care.” In other words, this survey was a tremendous success, and it has helped us confirm many of our assumptions regarding the current—and future—state of our industry.
The majority of our survey-takers fell into the small-to-medium-size business bucket—and have only one location.
As you can see in the charts below, while we had a good distribution of companies of different sizes, the majority of our survey base fell into the small-to-medium-size business bucket. About 90% of the companies represented have fewer than 100 total employees, and more than half have nine or fewer employees. Furthermore, despite the trends in consolidation we’re seeing across the industry, the majority of practices represented (63.7%) have just one clinic location. Practices with six or more locations, on the other hand, represented the smallest group of survey-takers (10.2%).
However, we expect the number of multi-location practices to increase.
Still, based on what has happened in other healthcare sectors, we do expect to see a continual increase in the number of multi-location practices over the next several years (and we’ll talk more about that in a moment). As of now, though, the market is still very fragmented: according to a 2014 IBISWorld study, small, independently owned practices account for roughly 45% of the entire rehab therapy market. But, with increasing practice costs and decreasing payments, consolidation through mergers and acquisitions comes with plenty of benefits for private practice PTs—including financial backing, resources, and support.
The Market
Private practice acquisition can be a highly lucrative investment.
Back in 2014, WebPT’s Charlotte Bohnett noticed an interesting phenomenon taking place at PPS: representatives from large PT organizations—ones that were newly “backed by private equity dollars”—were strolling across “the trade show floor, introducing themselves to clinic owners and negotiating acquisition deals right then and there.” According to Bohnett, the fact that 8,000 baby boomers are reaching retirement age each day—and younger generations are prioritizing preventive health, functional movement, and general wellbeing—“the healthcare market [and specifically physical therapy] has never been more saturated with consumers.” (According to this article, as of 2016, “physical therapy represents a $30 billion industry with an annual growth rate of 7% within the US.”) And that, Bohnett said, “makes private practice acquisition a highly lucrative investment move for qualified buyers.”
The industry is becoming more complex.
Jannenga agrees. In the above-cited Physiospot article, she cites market fragmentation—as well as the “ever-growing pressure for providers to remain compliant with increasingly stringent regulations”—as two of the reasons that the physical therapy industry is “yet again facing a rise in consolidation.” And she’s not alone. In a 2015 Rehab Management article on the topic of PT predictions, Sturdy McKee, MPT, the CEO of San Francisco Sport and Spine Physical Therapy Plus, said that “the physical therapy industry is consolidating and becoming more complicated.” And both Tim Richardson, DPT, vice president of operations at Fyzical Physical Therapy—an organization with nearly 300 US locations—and Josh Bailey, DPT, president and CEO of Rehab Associates of Central Virginia, echoed McKee’s sentiment in the article.
Large organizations are making moves to meet their numbers.
Jannenga also said that “because private equity money is still abundant and debt is still cheap, many enterprise-level organizations that accepted funding are now in a hurry to meet their growth numbers. And one of the easiest ways to do that is to start merging with—and/or acquiring—smaller practices.” Hospitals are also making the move to acquire private practice PT clinics—something Jannenga attributes to “the rise of bundled payment models” and the fact that “hospitals are being held financially responsible for the cost and quality of their patient outcomes.” And we all know that post-discharge physical therapy (as well as physical therapy in the acute care setting) can have a dramatic—and positive—effect on patient outcomes and hospital readmission rates.
This round of consolidations isn’t going to look like the ones of the past.
In a 2015 Founder Letter, Jannenga makes a point of saying that this round of consolidations likely will look very different from those in years past—and that’s a good thing. “The people at the helm of these large practices are PTs—rather than hired CEO guns,” she said. “So unlike the private equity-owned, HMO-driven mega-corporations of the past, these owners don’t see patients as just dollar signs.” Instead, Jannenga foresees “a lot of PT businesses partnering, consolidating, buying in, and taking on private equity funding. And all of that means that influential, business-minded PTs—specifically, some key heavy-hitters in our industry—will maintain the power.”
The Options
Private practice PT owners should get their ducks in a row.
In addition to having a general understanding of industry trends, private practice clinic owners would be wise to take some time now to consider their options in terms of consolidation—before an offer appears on their doorstep. That way, you’ll have the opportunity to get clear about your goals for the future without the added pressure of needing to make a decision one way or another. According to Jannenga, if you’re a private practice PT, then you should get your financials in order; have a team of “trustworthy, business-savvy, and legal-minded individuals you can lean on” to help you evaluate potential deals; and know—at least—the following about yourself and your business:
- Your company’s valuation (i.e., its worth).
- Your goals as they relate to your business (e.g., would you prefer to keep it at its current size or expand?).
- The amount of money you need to reach your goals.
- The role you would like for yourself within your business going forward (i.e., are you ready to move on to something new, or would you like to remain involved?).
- The type of arrangement that would most benefit you, your family, and your staff—both personally and professionally.
- The values, vision, and culture you want the other person, team, or company to uphold.
Remaining in private practice may require even more focus on value.
Rest assured, there will continue to be a market for private practice PT. But, private practices that wish to remain independent may need to evolve in terms of the value they deliver—and the relationships they build with other providers, ACOs, and patients. “With industry consolidation…there is an inevitable shift from volume to value, particularly for those practices who do not wish to consolidate,” McKee said. “This is an opportunity for PTs, if they can deliver measurable value, to drive down total costs and improve healthy outcomes.” To do so, both McKee and Jannenga allude to the need for providers to up their game—and as we’ve said before, that requires not only excellent clinical care, but also better data collection and marketing efforts. How else will independent providers be able to bring in new patients, improve patient satisfaction, and ultimately, compete with large operations?
If you’re wondering about WebPT’s take on this shift, Jannenga summed up her position in the above-cited Founder Letter: “In my book, change is inevitable, and we here at WebPT support industry changes—so long as PTs have the final say over what happens in our profession, and so long as those in this industry make decisions that increase our clout, respect, and autonomy within the healthcare community.” How do you feel about consolidation in the private practice PT space? Tell us your thoughts in the comment section below.
