Good news – patient volumes are growing
Most of the clinics we interviewed in mid-to-late 2017 agreed with the statement: “Patient visit volumes are not a problem for us.” Larger industry players are reporting 2-3% visit growth rates.
This volume growth appears to be driven by several drivers including:
- Aging population
- Healthcare payors / payment models incentivizing lower cost, high effectiveness settings like physical therapy, and putting up barriers to higher cost treatments such as surgeries
- Anti-opioid campaign likely to increase demand for alternative treatments for pain
Bad news – revenue per visit under pressure
Average industry revenue per patient visit in 2017 was ~$100-$110.  However, a clinic’s revenue per patient visit can vary depending on payor mix (e.g., Medicare generally pays less than commercial insurance) and clinic’s geography (e.g., Florida clinics have on average significantly lower revenue per patient visit than clinics in the Pacific Northwest). 
Most of the clinics we interviewed in mid-to-late 2017 reported pressure on revenue per visit. Even large industry players, who are reporting flat to 1% growth in revenue per visit. 
The pressure on revenue per visit is likely to persist, since Medicare (the largest single payor for physical therapy services) is reducing reimbursement for 2018. In its 2018 PFS Estimated Impact on Total Allowed Charges by Specialty, the Centers for Medicare and Medicaid Services (CMS) estimated a -2% impact on physical/occupational therapy reimbursement. Other large commercial payors may attempt to follow Medicare’s lead.
Furthermore, The Bipartisan Budget Act of 2018 contains a provision that would, starting January 1, 2022, reduce Medicare reimbursement for therapy furnished by a PTA to 85% of the regular amount. This may have a material adverse effect on clinics that have a large Medicare patient mix and are heavily reliant on PTAs.
The Bipartisan Budget Act of 2018 also contained a provision that repealed the Medicare payment cap for therapy services, which was initially viewed as a victory for the industry. However, PTs were already able to exceed the payment cap for the extra services that are reasonable and necessary, and while repealing the cap, the Bipartisan Budget Act of 2018 actually lowered the threshold for targeted manual medical review process from $3,700 to $3,000. So, coupled with the provision for a major reduction to PTA reimbursement starting in 2022, this payment cap “victory” is likely to be quite negative for the industry in the long-term.
Pressure on revenue per visit combined with growth in labor (therapist wages, assistant wages), rent and supply costs is putting significant pressure on clinic margins.
What to do?
Clinics appear to be pursuing one of two primary strategies to combat the pressure on revenue per visit and margin compression:
- Consolidation — most of the clinics that characterized themselves as successful and not overly concerned about reimbursement that we spoke with were either multi-location practices or in the process of opening additional locations. Having a high local market share and high local density provides leverage in negotiations with private payors.
- Laser focus on efficiencies and cost control — when the revenue line is under pressure, paying close attention to all of the clinic’s activities and demands on staff time and eliminating or optimizing wasteful processes can help preserve and improve margins.
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Sources and end-notes:
 U.S. Physical Therapy 3Q17 investor call referenced roughly 3% same-store growth rate comprised of 2% visit growth and 1% rate growth (https://finance.yahoo.com/news/edited-transcript-usph-earnings-conference-195101547.html)
 U.S. Physical Therapy Investor Presentation (November 2, 2017) and 3Q17 results show revenue per patient visit of ~$105 (http://corporate.usph.com/press/pdf/2017 Q3 Earnings Release – Final.pdf). Select Medical reports revenue per patient visit of ~$102 in Select Medical Investor Presentation at the 36th Annual J.P. Morgan Healthcare Conference (January 8-11, 2018)
 U.S. Physical Therapy 3Q17 investor call (https://finance.yahoo.com/news/edited-transcript-usph-earnings-conference-195101547.html)