Physical Therapy Reimbursement Rates in 2023 and Beyond

Physical Therapy Reimbursement Rates in 2023 and Beyond

The Shocking Truth About Physical Therapy Reimbursement Rates in 2023 cover

The Shocking Truth And What You Can Do About It

2023 Physical Therapy Reimbursement Rates

Shrinking profit margins pose a significant threat to private practice as physical therapy reimbursement rates in 2023 continue to decline and operating costs rise.

Since 2016, physical therapy reimbursement rates have decreased by more than 10%. You’re getting reimbursed less for the same amount of work. Yet we in the industry know that physical therapy provides the best outcomes per dollar.

Physical therapy reimbursement rates 2023 reflect a declining trend in reimbursement rates that's been going on since 2016.
Source: MGMA Government Affairs.

Table of Contents

The Impact of Declining Physical Therapy Reimbursement Rates on Private Practice

The combined impact of declining reimbursements and inflation may leave you at your wit’s end, spinning your wheels to preserve profits, and taking on more patients to make up for the revenue loss. Ultimately, it’s leading to shrinking profit margins, hiring and retention challenges, and PT burnout.

Shrinking Profit Margins

Profit margins in outpatient PT are taking a big hit from declining reimbursements and rising costs. In 2018, the average profit margin for a PT private practice was 14.6 percent. Today, that’s no longer the case. Bob Kowalick shared on a recent podcast episode that he’s seen a record number of practices with profit margins under 10 percent. When your profit margins go below 10%, you’re skating on thin ice. Your business is at risk.

Eventually, the severity of this issue may threaten the viability of your practice (if it hasn’t already).

Hiring and Retention Challenges

The rising cost of living also means employees at many clinics are asking for higher wages, at a time when there’s no profit margin to spare. The cost of PT school has gone up, so recent grads are taking on massive student loan debt and expecting higher wages. If you can’t meet therapists’ salary demands, those therapists may end up working at a hospital or bigger clinic. Hiring and retaining staff is incredibly challenging in this environment.

Owner and Staff Burnout

You’re probably working harder than ever while facing uphill financial battles. You’re overworked and underpaid, a classic recipe for burnout. And your staff isn’t immune to this either. At the end of the day, this could be impacting your patient care and your ability to enjoy patient care.

Physical Therapy Reimbursement Rates in 2023: Are the Cuts Here to Stay?

When we look at what’s happening today, there’s a clear trend: Overall expenditure on healthcare is going up, while reimbursements for physical therapy services are going down.

Even though national spending on healthcare increased 35% in the last five years, physical therapy reimbursement rates have decreased by 10 percent.
Between 2016 and 2021, healthcare expenditure increased by one trillion dollars.

In 2016, $3.3 trillion was spent on healthcare. In 2021 (the latest numbers recorded) it was up to $4.3 trillion. That makes healthcare 18% of the total US GDP, nearly twice as much as the average industrialized nation.

While the overall market for healthcare has gone up by 35% since 2016, physical therapists have seen little of that growth. Combined, there was $34 billion spent on physical therapy and occupational therapy in 2021. PT and OT made up less than 1% of the total healthcare spend.

And things are getting worse. We’re expecting more reimbursement cuts in 2024. The bottom line is you can no longer rely on doctors and insurance providers to have your best interests in mind.

So, what can you do in this situation?

Frustrated with declining physical therapy reimbursement rates? Discover effective strategies for negotiating reimbursement rates.

What Owners Are Doing to Survive

When profit margins get squeezed and what you’ve relied on in the past isn’t working, you know it’s time to make a change.

You need to find a way to solve your financial challenges and get your profit margins back to a healthy range (between 10 to 20 percent). Here’s what most owners are doing in an attempt to survive:

Cutting costs

This typically means pay cuts for owners and therapists alike. However, reducing wages or being unable to compensate employees fairly makes it difficult to retain top talent and continue providing high-quality care.

Marketing is another area where owners will look to cut expenses. But this will come back to bite you when patient volume goes down and your top-line revenue takes a hit.

Working long hours and treating more

Some owners are giving up on hiring and treating more patients themselves. It’s true that taking on more patients is one way to increase revenue (we’ll cover that more down below). However, if you take on too many patients as the practice owner, that doesn’t leave much time left over for taking care of business. And when profit margins are declining, you as the owner should really be focused on developing and executing a business plan to increase profitability.

Trying to negotiate better physical therapy reimbursement rates

One viable solution is renegotiating insurance contracts or dropping low-payers to increase your revenue per patient. This can definitely help in the short-term, but is not a long-term solution. Dropping your lowest-paying insurance providers may increase your average transaction value, but leaves you vulnerable to future reimbursement fluctuations.

Ultimately, these strategies lead to further decline in profitability and increase risk that a practice could end up closing for good or selling for pennies on the dollar. 

Instead, focus on the proven strategies for increasing profitability outlined below.

Frustrated with declining physical therapy reimbursement rates? Discover effective strategies for negotiating reimbursement rates.

 

3 Ways to Make Up for Lost Revenue in Your Practice

In his book Getting Everything You Can Out of All You’ve Got, Jay Abraham argues that there are three main ways you can boost revenue. These tenets can be applied in your PT practice to address financial challenges so you can either continue to serve your community for years to come or eventually sell at a profit.

1. Increase the number of clients you see

If you don’t have consistent patient volume, you should address this so you’re filling schedules and filling space consistently.

Take this hypothetical scenario about Practice A and Practice B.

Practice A: 2 PTs, 80% full, $90/visit, 80 v/w

Practice B: 2 PTs, 95% full, $90/visit, 95 v/w

What’s the difference in profit margin?

Profit B generates $1,350 more each week than Practice A.

If you don’t have a waitlist, then you’re not at full capacity and could benefit from adding patient volume.

2. Increase your average transaction value

There’s a lot of opportunity for practices to increase revenue through additional revenue streams. You can increase your average value per patient through insurance-based means, such as negotiating rates, dropping low-payers, or adding new insurance-based services such as RTM. However, it’s impossible to predict future changes to insurance-based reimbursements. What’s clear is that the US healthcare system doesn’t understand or heed the importance of physical therapy. Until that changes, efforts to improve reimbursement rates are likely to be difficult at best.

One great way to increase your average revenue per patient is to add cash-based services such as laser therapy, spinal decompression, dry-needling, or other cash-based products or services that you can incorporate into your patients’ treatment plans.

Tony Cere, Practice Owner of Kinetix PT, shares how he increased revenue per patient by dropping his lowest payers, renegotiating insurance contracts, and adding cash-based services.

3. Increase the frequency of repurchases

In outpatient PT, we refer to this as maximizing Lifetime Patient Value (LTPV). This means reducing patient drop-off, graduating your patients from their plan of care, and reactivating patients so they return for additional treatment when needed.

You can reduce patient drop-off by following best practices for conversion in the initial exam and creating a plan of care.

The Plan of Care Template can be used to help retain patients and prevent patient drop-off

Reactivation is where many practices are missing out on opportunities. Imagine that you have a patient who graduates from their plan-of-care, then later has a different issue that needs treatment. Will they know to come to you for their problem?

If they go to their doctor first, they may end up getting surgery or going to a competitor. They may not get treatment at all or realize they have problem.

On the other hand, if you consistently run reactivation campaigns and market to your past patients, you can stay top-of-mind for them. You can educate them about the various problems you can solve so they think of you when one of those issues arises.

Reactivating past patients is typically much easier and more cost-effective than attracting brand new patients to your practice.

With these email marketing ideas, you can reactivate past patients and increase lifecycle patient value.
Leverage your past patient list is the lowest-cost way to fill your schedules and fill your space.

How to Create a Plan for Profitability

All three revenue-generating strategies can help you overcome the impacts of declining physical therapy reimbursement rates in 2023 and beyond.

To do these well and increase profit margins so you can gain financial stability, you’ll need to develop a profitability plan.

The foundational aspect of your plan must focus on building patient demand. Patient demand refers to the amount of desire and interest that exists for your practice’s services amongst your past patient base and your community. Building adequate patient demand is the key to being able to effectively drive revenue growth and improve profit margins.

By creating a plan for profitability and increasing patient demand, you’ll be able to:

Fill your schedules and space consistently.

If you don’t have a waitlist, you definitely need to build patient. That means you’re not at full capacity and you’re missing out on revenue potential.

Drop your lowest payers.

If you don’t have a waitlist and you’re not fully utilizing your schedules and space, you can’t cut your lowest payers. By building more patient demand, you’ll be able to attract better-paying patients and create a cost-per-visit threshold that you adhere to.

Add cash services.

There are a variety of cash-based services that are proven to work for physical therapy patients. Part of your profitability plan should be to determine which cash-based service would fit best within your practice.

You’ll also need to build demand for those services. Without patient demand, you can offer cash services, but you’ll have difficulty selling them.

Increase Lifetime Patient Value.

Your former client list is a valuable asset. You can leverage it to reactivate past patients through email and text campaigns. Doing so will encourage patients to come back to you anytime they have a problem that physical therapy can support. This will increase the lifetime patient value and create more revenue.

How One Owner Successfully Increased Revenue Per Patient

Tony Cere, Owner of Kinetix PT worked with Breakthrough to add the Lightforce laser to his practice and now brings in an extra $220,000 annually in cash-based revenue. He adds this service to plans of care for new patients and markets it to past patients through email and SMS campaigns. Tony has seen 300% revenue growth at his practice within 6 years.

“Breakthrough’s email and SMS campaigns are really helpful for getting past patients in the door and getting the word out about our laser cash services. To make a big investment like that, you’ve got to know you can bring in the income. With Breakthrough, we didn’t have to worry…we had patients coming in for laser who ended up becoming PT patients.” —Tony Cere, Owner, Kinetix PT

The Bottom Line: How You Can Overcome Declining Physical Therapy Reimbursement Rates

If you are physical therapy practice owner who…

  • Feels the pressure of declining physical therapy reimbursement rates
  • Wants to stay ahead of the trend of shrinking profit margins
  • Has a growth mindset

Then you could be a great fit for Breakthrough’s Profitability Under Pressure Masterclass. In this 13-week course, you will join a cohort of other practice owners who are working through the same things together. Through small group calls with step-by-step instructions, templates, and one-on-one guidance, you will:

  • Go through a financial analysis exercise for your practice
  • Create a custom plan to improve your profits
  • Learn how to drop your lowest payer and renegotiate insurance contracts
  • Discover how to implement a cash-based service
  • Find out how to systematically attract better-paying patients
  • Learn how to fill your schedules and space consistently

We’re stronger together than alone. To learn more about the Profitability Under Pressure Masterclass, click the image below.

Breakthrough's Profitability Under Pressure course enables practice owners to improve profits and gain financial stability through proven methods.

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