Rethinking Fixed Salaries in Physical Therapy: A Tale of Two Creative Compensation Models

It's been a tough financial year for many physical therapy practices. Profit margins in outpatient PT weren’t that great to begin with, and reimbursements continue to decline. To combat this issue—which has been exacerbated by the pandemic and the ensuing lockdown—some clinic leaders have decided to move beyond traditional “fixed” salaries to alternative compensation models that enable more flexibility, increase transparency, and encourage accountability and collaboration among therapists. 

To better understand the factors driving this growing trend as well as identify the alternative payment models that are well-suited for outpatient clinics, I spoke with Jason Wambold, MSPT, co-founder and managing partner of OnusOne—a web-based system that designs, installs, and governs shared-risk employee compensation models in fee-for-service industries.

It’s the perfect time for PT clinics to take the leap.

Moving away from fixed-salary-plus-bonus models is something many PT clinic leaders have flirted with over the past few years. For one reason or another, most have held off from making the switch. Since the onset of the pandemic, however, interest in alternative compensation models has resurfaced with a new sense of urgency.

“With PPP funds drying out, clinic leaders are turning their focus inward to identify self-sustainable solutions to protect their businesses and provide opportunities for their therapists to remain employed,” Wambold said. “This has caused many of them to forgo the fixed-payment model in favor of one that safeguards their practice against future revenue losses.”

These models provide more flexibility when it comes to salaries, ensuring clinic owners are compensating staff therapists based on the value they deliver. Plus, it gives therapists a better understanding of where their salary dollars come from—and how they fit into the practice's overall budget.

Without further adieu, here are two non-traditional compensation models that are currently making waves in the outpatient PT setting.

1. Fixed-Pay, Performance-Based Hybrid Plans

A popular choice for small- to medium-sized outpatient practices, this plan generates a therapist’s total salary from two buckets—base pay and performance-based pay. The beauty of this plan is that it’s customizable for each therapist. For example, more risk-averse therapists can opt for a conservative compensation plan that offers a high guaranteed base pay. For instance, the 90/10 model (90% guaranteed pay and 10% performance-based pay) is a common choice. Alternatively, more risk-tolerant therapists may be open to a plan that places less emphasis on base pay or even eliminates it altogether so that 100% of their salary is performance-based.

This plan gives more control and flexibility to therapists and clinic owners alike. Therapists choose the plan that best suits their workflows, and clinic owners choose how their therapists’ productivity and overall performance will be measured. Common units of production include total visits, total billed units, and total reimbursable units. Whichever performance metrics you select, be sure they align with your clinic’s goals and support its long-term growth.

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Will this compensation model diminish a clinic’s culture and team dynamic?

According to Wambold, no—and for a couple of reasons. “Over the years, we’ve seen this compensation plan strengthen teams rather than diminish them,” he said. “Because the model is tied to clinics’ growth initiatives, therapists are more likely to work as a team in order to achieve these goals. It provides them with a level of accountability they previously may not have had. Additionally, we’ve found that employees aren’t solely motivated by money; rather, their motivators are tied to concepts like flexibility, professional control, and time away from work. And non-traditional compensation plans can offer all of these.”

2. Revenue-Sharing Plans

Taking the above example a step further, a revenue-sharing compensation model—similar to a profit-sharing plan—is structured so that each therapist is paid a percentage of the expected revenue from that therapist’s monthly billing (based on current reimbursement fee schedules). The kicker? Base salaries are thrown completely out the window. Each PT shares the practice’s profits and losses, which are directly tied to patient volume, satisfaction, and outcomes. 

Often, therapists don’t fully understand the overhead expenses that come with running a clinic, or what it even costs to hire a full-time PT. Staff wages, benefits, PTO, employment taxes, federal contributions, professional liability insurance, rent, supplies, marketing—these all add up. And when you look at those costs alongside current rate schedules from major carriers, it gives therapists a clear picture of how money is being exchanged—and, more importantly, how their performance affects profit.

How do care quality and patient satisfaction fit into the picture? 

Because this plan is based solely on therapist performance, setting procedure targets—like monthly visits, for example—can help PTs understand the difference between the number of patients seen versus the number of patients scheduled. From here, PTs see how this variance relates to the importance of delivering quality care—as patients who aren’t satisfied with their care are more likely to cancel or no-show. 

An added bonus (quite literally): Once therapists exceed their monthly goals, you can make them eligible to achieve financial rewards above their base efforts.

“The goal with a revenue-sharing plan is to bring the business side of PT to light, and encourage therapists to take ownership for their practice, how they deliver services, and focus on their patient outcomes,” Wambold added. 

Traditional salary models are on their way out.

In a service-based business, labor is typically the largest expense. And while fixed salaries with bonuses may be the simplest approach to payroll, the only enduring benefit of that model is that it’s easy. The reality is that such plans provide little financial security for practices with employees who may be performing less than adequately.  

So, for clinic leaders who have business continuity on their minds, Wambold says there’s no time like the present to explore different compensation models.

“Fixed salaries plus bonuses is a payment model that is no longer sustainable, and we are estimating that these traditional models will be obsolete in 12–15 years,” he said. “Clinics that make the switch now would have an advantage over others who continue to hold off, as it gives them time to perfect their strategy—and address the challenges stemming from declining reimbursements to strengthen their clinics, empower their therapists, and set themselves up for financial success after a year that hasn’t been the kindest in that regard.”

Interested in creative compensation plans, but need more information before you take the leap? Drop your comments, concerns, and questions below and we will do our darndest to help!