Is Consolidation Making Independent PT Private Practice Go Extinct?

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—reflect a continuing shift of large physical therapy companies buying up smaller organizations. So where do independent PT practices stand in the current rehab therapy landscape? Let’s take a look. 

The Data on Independent PT Private Practice

WebPT conducted an industry-wide survey of the rehab therapy profession.

Earlier this year, WebPT surveyed nearly 6,000 rehab therapy professionals for its annual State of Rehab Therapy report to create a better understanding of the current trends across the profession. As always, our survey included a cross-section of respondents from all different roles and practice settings to ensure we get the best data for the most precise picture of rehab therapy in 2023.  

The majority of our survey-takers fell into the small-to-medium-size business bucket.

Based on this year’s survey findings, we discovered that 64% of the respondents are employed in organizations with a staff size of one to 50 people. This implies that almost two-thirds of the sample represent small to medium-sized organizations, indicating that many independent PT practices and other rehab therapy organizations still exist.  

However, the number of large organizations has grown significantly.

Looking at the entire financial picture of rehab therapy practices based on this year’s report, we saw a drop in lower-earning organizations—and a sharp increase in the number of large, high-earning practices. The number of organizations making less than $100,000 has dropped 4% since 2018, and the number of organizations making between $100,000 and $250,000 has fallen nearly 2% during that same period. These numbers could suggest that smaller practices are feeling the financial strain or, perhaps just as likely, that bigger organizations are swallowing up smaller organizations.   

The findings on those more prominent organizations certainly give credence to the notion that they’re swallowing up snapper practices. Our findings over the past five years of reports show that businesses making more than $5 million annually have increased from 6% of respondents in 2018 to 16% in 2022. And roughly 14% of organizations stated they were more interested in selling their practice across the 2021 and 2022 State of Rehab Therapy reports. 

Rehab therapy isn’t alone in seeing increased consolidation.

Consolidation trends in healthcare aren’t limited to rehab therapy, either. Statistical modeling done by Deloitte using three different approaches suggested that the number of healthcare systems would be halved in 10 years due to mergers and acquisitions and partnerships. Similarly, a seminar conducted by the University of Pennsylvania Leonard Davis Institute of Health Economics in January 2023 noted that mergers between 1998 and 2021 resulted in a net loss of almost 2,000 hospitals. 

Given the increase in healthcare costs and the economies of scale offered by bigger organizations—not to mention the decreased payment rates for rehab therapists specifically—it’s not a surprise to see this trend continue as providers seek financial backing, resources, and stability.      

The Market for Independent PT Private Practices

Private practice acquisition can be a highly lucrative investment. 

While it might not be reflected in what providers or practices earn, rehab therapy remains a growth market—and an intriguing investment opportunity for businesses. According to one forecast, rehab therapy could be a nearly $73 billion industry by 2029. And that expected growth is echoed by the Bureau of Labor Statistics, which projects a 17% rate of growth in employment for physical therapists between 2021 and 2031. 

Granted, rehab therapy is vital for patients of all ages, but the significant growth seen in the industry over the past few years—and the growth in healthcare overall—has at least something to do with the continued aging of the US population. As this report from the U.S. Census Bureau notes, the percentage of the population aged 65 or older grew at the greatest pace in 130 years—and is projected to jump even higher by 2040. With an ever-growing number of Americans needing rehab therapy, it’s seemingly a bull market for investors.   

The industry is becoming more complex.

In this Physiospot article, WebPT co-founder and Chief Clinical Officer Heidi Jannenga 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.” 

It’s hard to argue that the industry remains fragmented despite the rise in consolidation. An overview of the physical therapy market from Harris Williams conducted in 2022 pegs the number of outpatient physical therapy clinics in the U.S. at approximately 38,000. Along those lines, a separate study from Market Research concluded that within private practice physical therapy, “(t)he 50 largest companies—two public operators and private equity-backed operations—captured just 29% of the industry’s market share.”

A wide-open industry without any dominant players is incredibly appealing to investors. As Private Equity Stakeholder Project researcher and co-author of the report “Recent Trends in Private Equity Healthcare Acquisitions” Mary Bugbee notes in this press release, “Private equity firms are drawn to investing in fragmented markets that experience high demand… They look to invest capital to consolidate small-time players into powerhouse companies with bigger shares of the market. Right now, healthcare remains an optimal space for private equity investment because there is a permanent demand for healthcare services and many subsectors within the healthcare industry are fragmented and ripe for consolidation.” 

Large organizations are making moves to meet their numbers.

In the Physiospot article mentioned above, Jannenga also stated, “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 a move to acquire private practice PT clinics—something Jannenga attributed 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. 

Financial circumstances could shift acquisition strategies.

While acquisitions have been on the upswing over recent years, changes in economic trends and the financial fortunes of acquiring companies could impact whether consolidation continues at its current rates or slows somewhat. Some, like PricewaterhouseCoopers, remain optimistic about the outlook for M&A deals in health services for 2023, citing the 24% increase in the volume of rehab therapy deals and the 59% increase in value.  

Others are of the mind that current economic anxiety will tamp down what has been an aggressive rate of expansion for many rehab therapy organizations. In the 2023 State of Rehab Therapy report, Chris Throckmorton, PT, MBA, CEO at Athletico Physical Therapy, stated, “I do believe, in light of the economic challenges in 2022, that organizations will be more selective in their growth and acquisition targets, and that the growth rate will flatten in 2023.” Looking at the economic picture more broadly, J.P. Morgan’s midyear outlook for the economy in 2023 suggests that we could see a mild recession by year’s end. Morgan Stanley concurs that a recession is possible for late 2023.   

The Options for Independent PT Private Practices

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, they’ll have the opportunity to get clear about their goals for the future without the added pressure of needing to make a decision one way or another. 

To achieve this goal, Jannenga suggests that owners of private practice businesses should organize their finances, assemble a team of dependable and knowledgeable individuals to assist in assessing potential opportunities, and have a clear understanding of at least the following aspects of themselves and their businesses:

• 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.

You can get more tips on business planning to get the best M&A deal for your practice from this webinar, featuring Jannenga and Paul Martin, MPT, CBI, M&AMI, Founder and President of Martin Healthcare Advisors, LLC.

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,” stated Sturdy McKee, MPT, CEO of San Francisco Sport and Spine Physical Therapy Plus, in this blog from Rehab Management. “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?

As our industry report reveals, the landscape of rehab therapy is constantly changing, and consolidations will continue to ebb and flow as the broader financial situation dictates. Independent physical therapy practices will always comprise some of the rehab therapy landscape. Still, more small business owners might start considering the benefits of being acquired as their margins decrease. 

However, the need for practices of any size to have a clear business plan and continue providing excellent patient care will never change. 

‍