60%+ Profit Margin On A Physical Therapist

It is important we clarify some terminology first. This article is specifically addressing the profit margin on a single physical therapist. This does not include the expenses of support personnel, business operations, etc. I am not discussing the profit margin of a physical therapy practice, only the profit margin on highing and paying a single physical therapist.

Looking at published financials from USPH, Salaries and related costs accounted for nearly 63% of total revenue for the year ending December 31, 2020.

This number should include clinical and administrive salaries among others.

(See screenshot below)

In 2003 a business consultant suggested we never pay more than a 1:5 ration of salary to revenue.

This means a single therapist would produce $250/hr for a $50/hr wage. 

These days with declining reimbursement the ration is closer to 1:3.5 with a therapist generating $175/hr.

Physical Therapy Clinic Profit Margins

Screenshots from BizBuySell

Physical Therapy Clinic Profit Margins Example 1

Stats from the example above:

Physical Therapy Clinic Profit Margins Example 2

Stats from the example above:

Average Physical Therapy Clinic Revenue in 2022

An easy way to determine average physical therapy clinic revenue in 2022 is to calculate the average full time physical therapist working on outpatient therapy will deliver 160 billable units.

Based on Medicare Part B physician fee schedule average reimbursement for direct care one on one timed services including CPT codes in the 97000 series we can calculate range of $20 to $35 per unit for 160 units a week and 52 weeks a year.

Total average revenue per full time physical therapist is between $166,400/yr and $291,200/yr.

A clinic employing 2 full time physical therapists can expect to generate between $332,800 and $582,400.

Why is a therapist paid such a low percent of revenue produced?

Low is a relative term. If a therapist wishes to earn more per hour then the therapist needs to generate more per hour. Find a clinic treating higher revenue generating referrals. Add self pay services. Offer group sessions. Etc.

The primary reason a therapist may earn a relatively lower percent of revenue produced is because of the high risk associated with physical therapy services. Below is a list of 7 risks associated with the delivery of physical therapy services.

1. RAC audits and insurance take-backs (3-year lookback)
2. Other payment denials due to denied authorizations
3. Injury and personal harm to the patient or the therapist
4. Misconduct on the part of the therapist
5. Intellectual property theft
6. Damaged reputation of the business
7. Delayed payment due to clerical or administrative errors

A physical therapy business owner must be compensated for assuming the risks listed above plus a host of unlisted risk.

Independent Contractor vs Employee

One of the advantages of hiring a physical therapist as an independent contract instead of an employee is the transfer of risk from the business owner to the contractor.

Unfortunately, most smaller physical therapy businesses are not working with independent contractors properly.

The best way to structure your relationship with a true indepedent contractor is as follows:

• Your business receives the new patient referral.
• Your business handles the marketing and billing for all patient services.
• The independent contractor agrees to hire your business and pay your business a percent of revenue for backend administrative services.
• The new patient referral and physical therapy services provided by the independent contractor are billed through the independent contractor’s business and personal PTAN.
• The independent contractor pays your physical therapy business for marketing, billing, collections, and accounting services. The rate should be between 15% and 25%.
• The independent contractor has complete and total freedom to schedule and treat the patient under its own policies and procedures using its own equipment and proprietary protocols.

This arrangement insulates the private practice owner from a level of liability and would allow the private practice owner to pay the independent contractor a high rate.

How to Calculate Net Profit for the Business

What is the physical therapy clinic’s average profit margin?

One widely cited articles from MarketResearch.com suggests a 14.6% net profit margin for physical therapy clinics in the US.

Yahoo Finance’s statistics tab for USPH shows a 9.14% profit margin as of 11/20/2021.

It is important to consider the difference between large corporate physical therapy businesses and small independently owned physical therapy businesses.

Many small providers incorrectly calculate their profit margin because they include activities they are doing as the owner without accounting for the cost of hiring those activities out.

How to Calculate Net Profit for each Therapist

What is the average profit margin on a physical therapist?

Lets use some specific numbers. Based on several website statistics, the average physical therapist earns $85,000/yr. Divide that number by 2,000 work hours for an average hourly compensation of $42.50.

This number will vary widely based on geographic location and practice setting, but for illustration I will ask you to use this average number.

If a typical Medicare beneficiary recieves outpatient physical therapy services for 60-minutes comprising 4 units of one-on-one timed therapy codes, the average reimbursement will be $105 or $26.25/unit.

To calculate the profit margin on 1 hour of a physical therapist’s time we would assume $42.50/$105 = 40% Leaving a 60% profit margin. 

At a rate of $80/hr a physical therapist is producing a 24% profit margin.

What is the difference between profit margin as a percent vs absolute value?

Calculating profit margin as a percent is great, but for small practices of under $2,500,000 in revenue it is likely better to calculate profit margin as an absolute value.

In the example above in which the therapist getting paid an average rate is producing $62.50/hr.

In the example above in which the therapist is getting paid $80 per hour the profit is $25/hr.

This is important when calculating total capacity. If a therapist was to complete 30 sessions a week at 50 weeks a year the max profit would be 30 x $62.50 x 50 = $93,750/yr.

The therapists getting paid $80/hr at the same volume of visits would produce $37,500/yr.

Is it worth the risk?

The question every business owner must ask is “Is it worth the risk and liability of losing hundreds of thousands for max potential of $37,500/yr?”