physical therapy practice

Understanding the Economics of a Physical Therapy Practice

Steve Thompson is MPT, CEO and Owner of Sport and Spine Therapy of Marin

Ok, you have just completed PT school and you are ready to take on the world and help as many people as possible. Fantastic! Now, the question always comes up – how much am I worth?

One thing I always consider when I am going into a marketing visit with a doctor or a sales call is “what value can I bring this person/doctor even before I ask them for anything in exchange?” A small bit of advice that I would offer to any new grad PT, or any person who is trying to learn about business is, find a way to bring value to the person first before asking for anything.

What I am most surprised by when I interview new grads is the wide range of salary “demands” that new grads are asking for even before they have treated a single patient. Some new grads feel very confident in their skills, which is a wonderful thing. I remember that time when I just finished PT school and was ready to treat! I had confidence in my skills but I had no clue as to how the “business” of PT works. I understand that the economics of PT are not covered in detail during grad school, so I wanted to take a moment to provide new graduates with a basic understanding from a clinic owners perspective.

In this article you will learn:

  • The basic economics of a PT practice
  • How you can bring value to a PT practice above just patient visits
  • What a private practice owner is looking for in a new graduate

Understanding the basic economics of a physical therapy practice

When you are contemplating what type of salary to expect, you could apply a simple formula. This formula could also be used to calculate what is expected of you. The simplest formula to understand how the “business” of PT works is as follows:

(# patients seen) x (avg reimbursement/visit) = total amt of value produced

Let’s take a hypothetical practice to start. For example, if you are expected to see 14 patients/day, and the clinic gets $100/visit, you will be generating $1400 of value each day. With an average of 21 treatment days in any given month, that means you have the potential to generate $1400 x 21 = $29,400 in a month for the practice. That is the value of your work to the practice. Value generation is, of course, more than numbers and production; it is about delivering high-quality care and generating raving fans that will bring in more patients for the business. The hard part is maintaining a balance between the value to the business and the value to the patients.

Calculating the “top line” is where most people stop and is a common mistake in both business and calculating value. Now you might be thinking, “that seems like a lot of value that you are generating” but let’s look at the typical expectations of an owner of their staff. In order to cover the overhead of running a practice and to build a profit margin to pay for equipment, raises, insurance – health and malpractice, etc, a treating PT should bring in 3-4x their annual salary. Therefore, if a new grad PT is earning a salary of $75,000, then the owner would like to see the PT bring in between $225,000 to $300,000 in revenue each year, or upwards of $25,000 per month, just to help cover expenses.

Based on this example, you can reverse engineer this equation to determine how many patients you will have to see in a given month to be a profitable employee (and investment) for the clinic. If we use our example of the $75,000 salary; to generate revenue of $25,000 per month at $100 per visit, you will have to see 250 patients in a month, or 12 patients per day to cover operational expenses.

We surveyed 1,691 physical therapists to learn about the state of the profession—from finances to clinical preparation and beyond. Download the survey to read the full report!

Clinical Expense Calculations

The expenses a clinic incurs are, of course, dependent upon the location of the practice, the cost of living in the city, the size of the practice, etc. For instance, a bigger city location (like San Francisco, CA) would need to bring in more revenue than a rural PT clinic (like Auburn, CA) . Profitability for a clinic is also affected by the PT’s salary demands. If a PT wants $85,000 per year, then that PT would be expected to generate 3-4x $85,000, or $340,000.

How many patients would a PT have to see to generate $340,000 per year or $28,333 per month? Simply divide $28,333 by $100 per visit (or whatever the clinic’s average reimbursement is), and you would need to see 283 visits per month or 13.5 per day. Based on the math above, when you are asking about salaries or are thinking about asking for a high salary, also ask how many patients you would be required to see in a given day. This will tell you if you can bring economic value to the company or not.

Bringing value in other forms

Value itself does not always have to come in the form of clinical revenue per day. Value, it turns out, is something that can be created in many ways. Let’s explore.

Many practices are looking at alternative methods of bringing money into a practice via wellness programs, massage, and other cash-based programs to combat the continual decline of insurance reimbursement. Alternative programs are a perfect place where someone who is passionate about PT, passionate about helping others, and eager to learn and treat can offer a service to the owner. Start a cash-based program. Use a skill you may have used before such as personal training, or in our world, Wellness programs. You have the power to bring so much to the table for a practice, you just have to think outside the box of being “just a PT”.

How about offering to deliver talks to the public to generate interest and business. Pick a topic area that you love and would enjoy spending time doing during your day or even after. Offer to host a booth at a local race to generate new leads to the business. Ask for the names of some doctors or referral sources that the owners are trying to develop a relationship with an see if that doctor would allow you to observe a surgery.

Plan on delivering AMAZING service to your patients and when they become your raving fans, then ask them “Who do you know that needs our help?” Generate referrals from your patients and help the practice grow.

The possibilities are endless, we just have to think differently. We have to think about generating value first and then get the reward for our work from the results we get. Somewhere along the way toward our careers, we were told that we are worth a lot of money and that we are entitled to a high salary. Unfortunately for your next employer, no one has told the insurance company how good you are and that they should open they bank accounts and pay us for what we are good at doing. The employer usually has limits on what they can afford, so offer to help him or her grow the practice in exchange for a high salary – offer to take a lower starting salary but have your increases in salary dependent upon generating value.

Give value first, receive value in exchange.

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About Steve Thompson

Steve Thompson
Sport and Spine Therapy of Marin is owned and operated by Steve Thompson, MPT. Steve received his B.S. in Physiology from UC Davis in 1992, and his Master of Physical Therapy from Samuel Merritt College in Oakland, CA in 1995.

One comment

  1. Stephen Brandis

    Hey Steve,

    Thank you for the article! Do you have any specific examples of how a physical therapist brought exceptional value and growth to your practice outside of just being a physical therapist?

    Warm regards,

    Stephen Brandis

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