Vice President and Associate Partner Discusses Challenges and Opportunities in Outpatient Rehabilitation and Physical Therapy M&A Market

How have changes to Medicare reimbursement affected outpatient rehab/physical therapy providers? Have those changes resulted in any opportunities in the market?
Changes made under PDGM (the Patient-Driven Groupings Model) have definitely resulted in new opportunities for outpatient rehab providers. Patient acuity drives access to therapy services now more than ever, and those patients who have less-acute needs are not as likely to be deemed eligible to receive rehab care in the skilled nursing or home health setting. But the need for those services doesn’t go away – if you have a hip or knee replaced, you absolutely need therapy to heal quickly and safely. So, I think this opens up a new avenue for skilled nursing facilities (SNFs), home health providers and assisted living facilities to expand their service lines by offering Part B outpatient physical therapy services, whether you want to operate a bricks-and-mortar outpatient clinic or if you want to bring those services into the home. There’s opportunity here for folks who are ready to think creatively about how to get their patients the rehab care they need.

Who should be thinking about adding a PT/outpatient rehab practice to their operations?
I definitely think the market is ripe for SNFs, assisted living and independent living facilities to look at adding outpatient therapy service lines. For example, if your facility or senior living campus has any unused space, there’s an opportunity for you to bring a rehab care provider on-site to provide services to your residents. Not only do your residents get the care they need, but it makes your community more attractive to patients who need rehab. You can also provide those services to patients in their own homes. From a revenue perspective, that can be a little more complicated. But the demand is there for companies that understand how to efficiently and effectively deliver that service.

What are some effects the pandemic has had so far on physical therapy providers? Are there any silver linings?
I think like most other healthcare providers, the pandemic really hurt outpatient rehab businesses. During the lockdown, patients just weren’t comfortable going out to therapy appointments or having therapists come into their homes. And you have to remember that outpatient rehab services are often downstream from medical procedures that were likely to be delayed in the early months of the quarantine. On top of all that, therapy doesn’t really translate well to a telehealth environment. So, I think the burden on these businesses was likely a little heavier at first.

But the providers have done a great job of putting safety protocols into place, and patients are getting more and more comfortable with returning to their therapy. So, I think outpatient rehab businesses are getting ready to emerge from a short-term bottleneck. Once patients start rescheduling their procedures and feeling good about going out again, I think we’ll see a surge in volume from months of pent-up demand. And where the demand goes, the buyers will follow – which means attractive multiples for good businesses that are looking to sell.

What does the mergers and acquisitions market for outpatient rehab providers look like right now?
We have a bit of an imbalance in the market right now – there’s a lot of people looking to buy, but not a lot of sellers. Pre-COVID we were seeing multiples in the five to six range, and even now it’s definitely a sellers’ market. And like I said before, I think in six months or so we’ll be on the other side of that bottleneck and we’ll see a lot of larger, national players looking to snap up smaller businesses in a bid to expand their footprint, so if I were a savvy buyer, I’d be looking around right now.

What do you think the market for outpatient rehab and PT providers will look like as we head into 2021?
I think this market has a lot of room to heat up in 2021. Buyers are starting to see the opportunities rehab care can offer, and we know there are patients ready and waiting to get access to those services. It may even make sense for some facilities to get out of the rehab business altogether and instead lease space to an outside rehab provider. There are a lot of synergies that could come from a good SNF-rehab relationship like that.

If someone is thinking about selling their PT/outpatient rehab business in the next 6-12 months, what should they be doing now to prepare and ensure the best result?
First of all, the larger you are, the better multiple you’re likely to get. So, if you have the ability to hire more therapists and push your numbers a little higher, that will help you in the long run. And get your finances in order – control the costs you can. Understand where your expenses are, and break out line items like labor that are driven by market forces. Concentrate on growth.

Besides that, I always advise folks who are looking to dip a toe into the market to find an experienced advisor they can trust to help them navigate the waters. I think there are a lot of changes coming up in the market, and you need someone with a high-level view of what’s going on across the country to help you think through your strategy. Don’t go it alone – work with someone who knows the industry, the market and the players if you want the best results.