The Outpatient Physical Therapy Market: High Potential for Investors?

The healthcare industry is constantly transforming, with the changes producing new opportunities as well as new risks. Within the continued transformation of the healthcare industry, interest investors have in physical therapy clinics remains high. Although rapid consolidation continues to occur, the overall outpatient physical therapy space remains highly fragmented. Private equity-backed investors are some of the most significant players in the physical therapy space as they try to scale their portfolios to gain market share.

This article highlights the outpatient physical therapy market as well as some of the key drivers of higher and lower valuations of these clinics. Overall growth in the physical therapy space is primarily driven by the aging U.S. population, as seniors are more likely to require physical therapy services due to increased injuries, illnesses, and chronic conditions. Based on data reported by the Population Reference Bureau, the number of Americans aged 65 years and older is projected to more than double from 46 million today to over 98 million by 20601. This increased patient base, as well as the shift in the healthcare industry towards care coordination and managing patient ailments prior the onset of more acute symptoms, has dramatically increased the interest of investors in physical therapy.

Valuation Insights

From a valuation perspective, we see increased valuations for physical therapy clinics that have made meaningful steps towards providing low-cost, high-quality care. In order to achieve this model, clinics must invest the time and resources into proper billing (along with the associated documentation), efficient staffing structures, investment into care coordination, utilization management, and patient contact centers. Additionally, as physical therapy has historically been a high cash based (self-pay) business, the diversification in payer mix generally will result in increased valuation multiples. Of these value drivers, our experience has been that proper billing and proper staffing have the most substantial impact on valuations.

Billing Insights

In valuing physical therapy clinics, we often see a lack of understanding and/or compliance surrounding billing for physical therapy and/or occupational therapy evaluations and visits. From a valuation perspective, this lack of understanding and compliance regularly drives lower value. If the clinic is under billing, it loses revenue; if it is overbilling, there is added risk associated with their future performance. From the perspective of an experienced investor in this space, these issues could be an opportunity to make meaningful earnings improvement from improved operational management.

Efficient Staffing Structures

The efficient staffing of a clinic is paramount when looking for a higher valuation multiple, as the highest controllable cost associated with operating a physical therapy clinic is wages. This assessment considers both the right mix of physical therapy aides to physical therapists, as well as an encounter volume per therapist that drives efficient operations while avoiding the common issue of burn-out within the industry.


The continued transformation of the healthcare industry, combined with the changing demographics of the U.S. population, have launched a high volume of physical therapy transactions in recent years with no slowdown in sight.  As a buyer or seller in this market, it is paramount that there is a firm understanding of both the complexities of operating a physical therapy clinic as well as how a subject entity’s current operations convert to value.

Contact Coker Group today for more insight on physical therapy transactions, as well as business valuation assistance for a variety of healthcare fields.Mather, Mark. 2016. "Fact Sheet: Aging in the United States." Population Reference Bureau. January 13. Accessed July 5, 2019.

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