When it comes to revenue, diversification is optimization. And while this certainly isn’t a novel concept—business leaders have been plugging the benefits of revenue diversification for years—it’s one that has become mission-critical for financial recovery and security in a post-COVID world. This is especially true for the rehab therapy industry.
Although the pandemic left no clinic unscathed, those that placed all of their metaphorical eggs in one basket felt the impact of COVID-19 even more acutely. For example, clinics that catered largely—if not solely—to post-op patients saw their visit counts dry up practically overnight when elective surgeries were postponed. By contrast, clinics with a more diverse payer and patient mix were better equipped to weather the storm.
Of the many actions clinic leaders are taking to diversify their revenue streams going forward, one in particular has gained significant traction of late: offering cash-based services. According to WebPT’s 2021 State of Rehab Therapy Report (slated to publish in June), 45.5% of the more than 2,000 therapy leaders surveyed said that they plan to add or increase cash-based services in 2021 to support their organizations’ financial health.
To learn more about why cash-pay therapy is so hot right now—and why providers should be capitalizing on this trend—I spoke with Dr. Jarod Carter, PT, DPT, MTC, a veritable cash-pay legend in the rehab therapy space. In addition to owning Carter Physiotherapy—a fully out-of-network physical therapy practice based in Austin, TX—Dr. Carter has been helping rehab therapists realize their cash-based dreams since 2011 through individualized coaching, curated courses and workshops, a blog, and a podcast.
Without further ado, let’s dive in!
The Ripening Cash-Based PT Market
Cash-pay physical therapy has been growing in popularity for the better part of the last decade. However, the financial strain many rehab therapists experienced last year—compounded by a consistent lack of adequate reimbursement from third-party payers—has made the cash-pay bandwagon more appealing than ever.
“COVID-19 was financially hard on many practices, and it exposed a lot of our profession’s vulnerabilities,” said Carter. “Our industry is one driven by low-margin third-party payers whose rates continue to fall year after year. The pandemic made this issue even more glaringly obvious, forcing many clinicians to speed up their transition out of traditional insurance-based business models. That said, I think last year was merely a catalyst for the inevitable.”
For small clinic owners, especially, reimbursement rates that either fall below—or just barely meet—inflating operational costs have been the name of the game for decades. To this end, Carter believes small clinic owners have three options moving forward:
- Grow much, much bigger, thereby increasing negotiating power with insurance companies;
- Close the business or sell the practice; or
- Go cash-based, even if only partially.
So, if you’re a clinic owner with no desire to open more clinic locations (not all clinic owners want that kind of growth, and that’s perfectly okay)—but you’re not ready to call it quits, either—then there’s no better time to consider your cash-pay options.
The Benefits of Cash-Pay Therapy Practice
Cutting ties with payers that no longer benefit your clinic—and supplementing those dried-up revenue streams with cash-based services—can have a profound effect on your clinic’s profit margins. In fact, Carter estimates that clinics can as much as double their profit per visit (PPV) by adding or expanding cash-based services.
Beyond the financial boon, though, a cash-pay model also:
- Emphasizes the quality-over-quantity approach to patient care, allowing therapists to spend more one-on-one time with each patient.
- Enhances the patient experience. Cash-pay models prioritize individual attention, giving patients what they truly value: highly personalized treatment.
- Helps alleviate therapist burnout. Without the added stress of chasing down reimbursements or trying to balance large patient loads, therapists have more time and energy to improve their clinical practice.
“The cash-pay model’s benefits can be simplified in this way: low stress, high touch, high fulfillment,” Carter said. “It enables therapists to get back to what they set out to do when they started physical therapy school: help people.”
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Transitioning to a Cash-Pay Practice Model
The beauty of the cash-pay model is its flexibility. Contrary to what some therapy providers think, transitioning out of network doesn’t—and in most cases, shouldn’t—happen all at once. Clinics can gradually introduce cash-based services that are outside of the normal PT scope and assess their marketability. This progressive, hybridized approach gives practice leaders a taste for what it’s like to manage a cash-based revenue stream before they decide whether to fully commit.
Here are some services that are fairly quick and easy to incorporate:
- Wellness services like massage, dry needling, cryotherapy, infrared therapy, and health screenings
- Fitness services like group exercise, personal training, medically oriented gym memberships, recovery sessions, and cryotherapy
- Nutrition counseling
- Partnerships with local schools or sports clubs
“The great thing about offering cash-based services is that they not only help to diversify your revenue streams, but also act as tremendous lead generators for physical therapy,” Carter explained. “The key is to choose services that your client base is already paying for somewhere else to get them in the door. Once you’ve proved your team can help them achieve their goals in one area, they’re likely to explore other service options with you. Sell them what they want; give them what they need.”
The Writing on the Wall
The Centers for Medicare and Medicaid Services (CMS) has a long history of reducing rehab therapy payments, and unfortunately, this discouraging trend is unlikely to change.
“Medicare will continue to slash what they pay for healthcare services; otherwise, they will go bankrupt—and the government won’t allow that to happen,” Carter said. “Plus, whenever Medicare makes a move to drop reimbursement rates, third-party payers follow suit. More cuts are on the way, and physical therapists will be at the brunt of these, as we are still seen as tertiary care providers in their eyes.”
As a result, clinic leaders have turned their focus inward to identify self-sustaining solutions to protect their businesses, support care continuity, and keep their therapists employed—and incorporating cash-based services is one of the simplest ways to check all of those boxes.
“I think we’ll see a huge increase in practices at least partially out-of-network over the next year,” Carter added. “Although some clinics are moving faster in this arena than others, it’s being done in markets all across the nation—and not in just affluent areas. As someone who has been practicing cash-pay and helping my colleagues do the same for some time, it’s uplifting to see so many other providers take control of their practice in this way.”
Having a steady, reliable revenue source has always been crucial to clinic success. However, in today’s climate, it’s no longer enough to have just one. Expanding your practice to include cash-based services can help you diversify earnings and expand your reach to different patient populations and new markets. And that’s a win-win.