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Maximizing Profitability: A Strategic Approach for Outpatient Physical Therapy Clinics in 2024


Skitch to planning and strategy

Key Takeaways:


  1. Strategies used today to boost profitability in outpatient physical therapy

  2. How to unlock profitability using Time ROI

  3. Your best strategy considering Time ROI

 

What’s happening in outpatient Physical Therapy (PT) care?


As all providers know well, musculoskeletal (MSK) care is the number one cost driver and disease burden in the US healthcare system, surpassing in magnitude both diabetes and heart related conditions with direct costs of $227 billion. This burden is expected to grow due to an aging population and declining birthrates, where 1 in 5 Americans will be over the age of 65 by 2030. Meanwhile 54% of adults in the US report a musculoskeletal disorder, with prevalence increasing between the ages of 45 and 64 further driving the demand for quality PT care. In addition to demographic impact, PT proves to be as vital as primary care! Musculoskeletal care protocols turn patients to outpatient PT as an effective non-pharmacological first treatment for chronic pain, as well as preferred pre-surgical or pre-imaging treatment. Potential patients are on every street corner of America.


Yet the business reality is that the 2024 Medicare Physician Fee Schedule once again reduces the conversion factor by 3.4% while administrative costs in the clinic including but not limited to staff burnout and churn, technology costs, marketing, salaries, and continuing education add to increasing operational expenditures. This hits independent clinics harder than corporate healthcare systems who manage outpatient PT clinics. Within these systems where they easily acquire referral sources and keep patients in-house, they leverage system scale to operate even through decreasing reimbursement levels. Independent physical therapy clinic operators and provider-owned practices (POPs) without such scale, need ways to achieve profitability that help them grow to serve their community’s musculoskeletal demands.


Profitability is always linked to optimization. This was reflected in APTA's Private Practice Sections November 2023 conference and summarized by Alex Bendersky,

"Optimizing clinical care within the musculoskeletal domain is no longer a mere luxury; it’s a pressing necessity."

Strategies employed today to tackle profitability challenges 


Effectively addressing forces like declining reimbursement and increasing administrative costs, makes or breaks healthcare businesses. Many independent PT clinic operators and POPs primarily operating in fee-for-service models, turn to increasing patient volume and productivity, or ‘billable’ time requirements for their PT clinicians. They may have implemented pay incentives based on patient volume. Or encouraged performing multiple tasks during patient sessions including seeing more than one patient at a time. Other levers include reducing insurance-based patients by shifting to serving ‘direct to employer’ contracts or focusing the payer mix on cash-pay patients and even introducing subscription services.


What do these strategies say? Operators and POPs are trying to optimize TIME. They do this by optimizing clinician time, or by moving time available from lower value activities to higher value activities; Or trying to do more higher value activities within the same time availability.  It’s all about finding more TIME and utilizing time better.


Time is your Currency


Time is what you sell. It’s your unit economics, like the square foot is to a builder or retail store. In any outpatient PT clinic, time buys you profitability. What is it worth in your practice?  Your success metrics can be adjusted when you understand how time is generating money or how it isn’t.


In the following example, your clinic revenue goal is $1m. To reach this goal, each licensed PT hour should generate $150 on average. The following table shows how to calculate this number:

Rev Goal

Operating Days

Rev Goal Per Day

Reimbursement Per Visit

Patients/Day

$1m

260

$3,846

$100

38

Minutes/Visit

DPT Hours/Day

Rev/DPT Hour

40

25

$153

Consider every 60-minute hour that generates ~$150 ‘Rev-Time’. Any hour not generating $150, is considered ‘Non-Rev’ time. The point here is to understand what operational time you give out, how much value do you get back? In this scenario you need to be getting back on average at least $150 per ‘Rev Time’ hour per DPT covering 25 hours in total to reach your profitability goals.


Yes, every business has ‘Non-Rev’ time and ‘Non-Rev’ activities.  But thinking about time as your currency means discovering where the greatest amount of ‘Non-Rev’ time is hiding within your operations and workflow:

  • If a system or method or technology is attached to ‘Non-Rev’ generating activities, how much operational time is spent in each of these ‘Non-Rev’ activities?

  • If your DPTs are operating at 90% productivity, how much of this time directly impacts your patients? Or how much of this time is positively impacting the quality of your service? Any time not impacting patients or quality of service are ‘Non-Rev’ activities.


Next, evaluate and quantify the impact of your ‘Non-Rev’ time on your business in terms of hourly unit economics. Examples of ‘Non-Rev’ time may be the quantified value lost from schedule gaps due to no-shows or scheduling errors, late arrivals, manual processing of forms by DPTs, and yes, the big one: documentation time.


Not saying to ditch traditional KPIs like average number of patient visits, billed units and clinical utilization. They generate valuable insights/trends, but they don’t tell you which areas or activities to optimize like the ‘Non-Rev’ time evaluation and quantification does.


The goal is to optimize ‘Non-Rev’ time and associated activities across the entire business for one purpose: for your clinic to generate $150 of Rev Time per DPT hour by seeing and treating more patients, keeping patients close to your brand and coming back. This optimization can be your differentiating superpower.


Using Time ROI to evaluate current business strategies


Let’s revisit those strategies used for clinic profitability in light of the Rev-Time metric:

  • Pulling hard on the levers of volume and productivity of your DPT team for sure increases ‘Rev Time’. Keep in mind though, it simultaneously increases associated administrative burdens that accompany volume and productivity and therefore drives MORE time to be ‘Non-Rev’. In high volume environments, DPTs only have time for seeing and treating patients thus moving increased administrative activities to after working hours often contributing to clinician burnout. Skilled labor burnout is one of the biggest hits to profitability in any business, especially in healthcare. In the physical therapist-led consulting group UpDoc Media, early findings of their 2023 Practice Management Report are discussed in their Corporate Quality Podcast, 40% of respondents report taking 3-6 months to fill a vacancy, costing $40-$250k in lost revenue.

  • DPTs performing multiple activities during a patient session detracts from the focus on delivering quality patient care and clinical outcomes.  ‘Rev Time’ is certainly increasing, but the quality of the care delivered within the ‘Rev Time’ is declining. As reimbursement models shift to value of outcomes, mediocre patient care not only impacts patient outcomes in the current Fee For Service model but also jeopardizes future business when value is the key.

  • Other strategies include eliminating or reducing insurance-based patients by shifting to serve direct to employer contracts or focusing on cash-pay patients. These changes may seem like they will free up time for more patient care, more ‘Rev Time’, with less ‘Non-Rev’ time in general. These changes though may intensify the challenge of profitability by limiting patient segment size such as those between the ages of 45 and 64 who have the highest prevalence of MSK conditions.


It is apparent here that the best strategy to profitability must support the increase of ‘Rev Time’ while simultaneously reducing ‘Non-Rev’ time. A way forward is to offload activities associated with ‘Non-Rev’ time to solutions that can generate patient care ‘Rev Time’. To better clarify, here is an example:

  • Leverage technology solutions to reduce redundancies, that include text messaging reminders, and automated provider communication between visits. This frees your front desk team to be responsible for Rev-Time activities (patient arrival focus, marketing, promotions, public relations/events, patient satisfaction, patient lifetime value, and referral-source communications) that ensure DPTs achieve $150 per hour.


A successful implementation of this strategy depends on discovering and quantifying the ‘Non-Rev’ time activities. Next, the activities that represent most of the ‘Non-Rev’ time are your VILLAINS! Make your practical plans around defeating them.


Documentation: a ‘Non-Rev’ Time Villain like no other


When do your clinicians document patient care? During care? After care? After hours? No matter what a clinician does, it takes 1-2 hours a day to document patient care. This is equivalent to an average of 2 extra patients a day per clinician. We’ve done the math for you in this calculator. That’s why documentation is a true ‘Non-Rev’ time VILLAIN! It reduces ‘Rev Time’ and increases ‘Non-Rev’ time – completely opposite to profitability!


WebPT's “2023 The State of Rehab Therapy” survey found 90% of PT clinicians document during care and/or after hours. What's important here is that if 90% are documenting some or all their workload after hours, that time most often is not compensated, leading to burnout and reduced energy and moral of your PT team. Quoting one of the DPTs:

“I'm thinking about the experience of having three evals at the end of the day and then having to think through and write out your subjective and assessment... it's so painful when you're already tired and you want to go home in 30 minutes but know it's going to take an hour or more to complete.”

Even if it is compensated, shouldn’t that high-value time be spent seeing patients?


Follow us to get our next post on how to turn this ‘Non-Rev’ time Villain into a Rev-Time HERO!

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