Strategies for Independent Therapy Practices During Changing Times

In Organizational Excellence, Physical Therapy Articles by Jim Hoyme, PT, MBA1 Comment

Strategies for Independent Therapy Practices During Changing Times:
Size and Value Delivery are the Key Factors

The Affordable Care Act, commercial health plans, self-insured businesses, and value-conscious individuals are ‘powerful decision-makers’ in our health care market putting pressure on providers to provide convenient access, measurable quality, and proof of delivering care at lower costs. The government and private sector payors are creating more regulations and requirements on providers, new payment methodologies, and demands for financial risk sharing. Additionally, independent therapy practices face stronger competition from large, vertically integrated ACOs that employ primary care physicians who must keep physical therapy referrals within their ‘narrow networks’; consolidated orthopedic practices that employ their own physical therapists; and large corporate physical therapy practices.

Yet while the changes may seem daunting and challenges significant, health care reform’s demands for size and value actually bring independent physical therapy practices greater opportunities. The independent physical therapy practices that succeed during these times of change will deliver creative strategies built around the market demands for size and value delivery.

10 Key Health Care Reform Factors Physical Therapists Can’t Ignore

The thousands of pages of rules, regulations, and law related to the Affordable Care Act and the additional expectations health plans, ACOs, and consumers create changes that are way too complex and extensive for the average health care provider to fully understand. However, there are 10 factors that every physical therapist must consider in creating new strategies.

Strategies for Independent Therapy PracticesDownward Pressure on Reimbursement.
Health care costs must come down. Government, employer groups, and health plans are looking for ways to reduce expenditures, and the logical solution is to reduce payments to providers.

The Triple Aim: Measurable QualityAn Exceptional Patient ExperienceLower Total Cost of Care.
The Triple Aim offers great opportunities for practices that demonstrate tangible value by delivering on each of these 3 elements.

Volume-to-Value Risk Sharing.
Health plans are transforming payment models from traditional volume-based fee for service to various value-based methodologies such as case rates, bundled payments, capitation, and shared savings models.

Patient Centeredness.
This term means actively engaging patients and their families in health care decisions and in the self-care of their conditions. It means offering treatment and management solutions truly based on what the patient wants.

Policy makers and consumers of health care expect providers to work collaboratively with other provider types to create patient centered programs that enhance the patient experience and improve their overall health.

Consolidation occurs when groups organize in some way under a single tax ID number. Consolidation brings stability, simplicity, and predictability to health plans and can take the form of organic growth, acquisition, merger, or management services organization (MSO). There are 5 major reasons providers are consolidating:

  1. Gain negotiating strength with payers
  2. Reduce the risk of financial risk sharing
  3. Better manage the expectations and risks of increasing government regulations
  4. Achieve economies of scale in administrative services
  5. Improve bottom line value

Accountable Care Organizations (ACOs) are a form of provider consolidation. ACOs are integrated hospitals and clinics and have 2 major responsibilities:

  1. Deliver a broad range of quality health care services
  2. Manage the cost of those services.

In collaboration with health plans, ACOs are forming ‘narrow networks’ consisting of providers chosen to see patients within their ACO. ACOs offer private practices either a huge threat or fantastic opportunity.

Patient Centered Medical Homes (PCMH).
PCMHs are primary care clinics that have the cost of care provided by their clinic and by those to whom they refer ‘attributed’ to them. Some of their payments may increase or decrease relative to the costs attributed to them. Since both ACOs and PCMHs are concerned with costs, value-based independent therapy practices may bring them great value.

Increasing Regulatory Pressures.
The ACA has created hundreds of new regulations with which health care providers must comply. Compliance is complex and costly, and the price providers pay for non-compliance is steep. It is hard for small practices to be aware these lengthy regulations.

Health plans and ACOs do not have all the answers, and they seek solutions from creative providers. Independent therapy practices can offer creative solutions that will result in Triple Aim value.

Most of these changes are challenging and expensive for the small private practice to implement and create strategies around. Integrated provider business models can make a more powerful impact in their market based on size and value delivery.

Strategies for Value-Based Relationships with Health Plans

Value can be defined by a fairly simple equation:

Value = Quality + Service + Access / Cost

Providers must try to increase the numerator and decrease the denominator; that’s real value.

Strategies for Independent Therapy PracticesThe value equation is contained in the concept of health care’s Triple Aim. Providers who deliver the Triple Aim reduce costs and improve population health. So how does your practice ensure you truly deliver measurable value? It starts with your Mission and Culture and ends with your Strategy.

Adopt a Mission incorporating The Triple Aim.
Create a plan to incorporate quality, service, and cost factors into your organization’s mission statement and mentor your colleagues on the meaning and importance of the Triple Aim. Hold team members accountable.

Build a Culture steeped in value delivery.
Your team will not deliver a mission across your whole practice unless you have a culture that supports that mission. Ensure outcomes management, quick access and caring service, patient centered collaboration, and effective care management become ‘how we do business here’.

Create a Strategy built around Innovation.
Think about the innovations you can bring to the market that differentiates your practice. Your strategies must distinguish your practice as one that truly delivers measurable value.

Strategies for Independent Therapy Practices
Now you are getting ready to start selling value to health plans because your mission, culture, and strategies are well aligned and are important to their businesses as well as yours.

Getting on the Same Page with Health Plans . . . Think ‘Win-Win’

For years, physical therapy has been essentially viewed as a commodity where cost is the only factor; quality and service are not considered. In a commodity world, Value = Lower Cost.

So how does a physical therapist overcome that barrier? Think of yourself as a problem-solver.

Seek the concerns of health plans. Listen. Analyze. In all likelihood their concerns relate to cost of care and health of their enrollees.

Try to understand their problem better than they do. The health plan will be interested in and focused on finding ‘silo-based’ solutions – reducing the direct cost of physical therapy. Re-direct their problem-solving interest away from the physical therapy silo to a bigger picture solution based on their real needs – controlling and reducing the total cost of care (TCOC) related to musculoskeletal conditions.

Create a care model solution and payment methodology to truly decrease their costs and improve the health of their enrollees with musculoskeletal problems. Come up with 2-3 potential options the health plan has never tried before. Seek a ‘win-win’ for you and the health plan. It’s time for innovation.

Stay focused on getting the absolute best results possible. Keep improving. Exceed the plan’s expectations. Show a commitment to improving your care and service to your patients. This will build long-term relationships with these powerful decision makers.

Strategies for Independent Therapy Practices

Value-Based Models

There are many possible value-based models involving effective care management, outcomes benchmarks, and risk sharing. As you start to develop options, think about how money is spent on musculoskeletal conditions – the total cost of care. The Musculoskeletal Cost Funnel depicts the reality of the cost drivers in orthopedic cases.

Musculoskeletal Cost Funnel

Design model options that get patients to enter the low cost part of the funnel – primary care and physical therapy. Create models that ensure a vast majority of those patients enter the low cost part of the funnel and feel and function so well they don’t enter the high cost services in the wide part of the funnel.

Here are 3 value based models to consider:

  1. Fee for Service or Per Diem with a Bonus for Achieving Outcome Benchmarks – Shared Risk
    Seek a Per Diem model with a reasonable rate based on your average per visit payment from that plan. If the plan cannot manage a per diem rate, offer a fee for service model. Establish outcomes benchmarks with a financial reward for achieving them. Convince the plan representatives “Better functional outcomes results in lower total costs.”
  2. Case Rate with a Bonus for Achieving Outcomes Benchmarks – Moderate Risk –
    Propose a flat fee per referral. This model puts more financial risk on your practice, and every team member must be able to effectively manage risk. The rate must include a bonus for achieving outcomes benchmarks along with baseline outcomes expectations to prevent under-utilization. Tight care management with defined outcomes and utilization expectations of therapists is absolutely critical. This model takes focused leadership and management.
  3. Shared Savings Model – Higher Risk
    This is a total cost of care model. It is more complicated and requires a willingness of the health plan to compile TCOC data from a previous year for all health care services related to defined conditions; upstream, direct physical therapy, and downstream costs must be segregated. Negotiate a shared savings model in which the health plan shares a predetermined percentage of the TCOC savings with your organization. Therapists must design a creative care model with less expensive ways to deliver care while achieving functional outcomes benchmarks.

Strategies for Value-Based Relationships with ACOs

The same points that impact relationships with health plans apply to relationship building with ACOs as well. Let’s check out the opportunities in the ACO world.

The Growth and Impact of ACOs

Strategy in a Changing PT WorldThe Accountable Care Organization, or ACO, came onto the health care scene in 2012. According to the American Academy of Family Physicians, ACOs are defined as “a group of health care providers who agree to take on a shared responsibility for the care of a defined population of patients while assuring active management of both the quality and cost of that care”. In other words, ACOs are accountable for quality and cost – like a combination of a care system and a health plan.

Here are key points to consider regarding ACOs:

  • ACOs must have primary care as their foundation and most are created around hospital systems.
  • There are several types of ACOs; some are Medicare-based, some are commercial-based.
  • All ACOs must share financial risk with the payors.
  • There are over 800 ACOs in the US
  • A large majority of Americans now live in an area with 1 ACO and over 50% live near at least 2.
  • A majority of US physicians are now employed by health systems or ACOs.
  • ACOs and health plans are creating ‘narrow networks’ of providers to better manage care and cost.

ACOs are here to stay, and their decision-makers will become more powerful and influential as health care reform marches on.

Opportunities for Independent Physical Therapists with ACOs

While the thought of the ACO model can be daunting, tremendous opportunity exists for independent therapy practices that can deliver on the needs of ACOs and bring them tangible value. The ACO mantra is based on quality and value – two factors many physical therapists have espoused for years. It is an invitation to overcome the ‘commodity syndrome’.

ACOs essentially have 3 ways to deliver physical therapy:

  1. Strategy in a Changing PT WorldBuild. They can invest their money in bricks, mortar, and people. This gives them full control, but building physical therapy clinics is expensive.
  2. Buy. They can acquire existing private therapy practices. This gives ACOs control, but is expensive, diverts resources, and creates the challenge of integrating multiple cultures into their own.
  3. Partner. The ACO and independent practice create a ‘partner’ agreement. The physical therapy organization remains independently owned and creates a close, trusted relationship with the ACO.

So how do ACO decision makers decide? It boils down to two factors . . . Money and Control. As payment methodologies for ACOs changes from fee for service to value-based models, physical therapy moves from a revenue generator to a cost center. Independent practices that can reduce costs, achieve high level outcomes, and share risk have a compelling value proposition for ACOs.

Key factors for independent physical therapy practices are:

  • Convenient access across a number of clinics and therapists
  • A reputation for caring, patient-centered service in your community
  • Outcomes data that proves high quality care
  • A proven ability to manage care effectively to eliminate unnecessary interventions
  • A willingness and ability to share financial risk with the ACO
  • A Leadership team to simplify communication, innovate, lead change, and hold people accountable

Selling Your Value

Strategy in a Changing PT WorldIndependent practice leaders must influence ACO decision makers to move from thinking they must control therapy as a revenue generator to realizing their best strategy is to partner with independent practices who can help the ACO save money and improve outcomes.

Start with these 6 steps:

  1. Research Your ACOs
    Research your local market to find out which hospitals and clinics have formed ACOs and who is in leadership positions. Find out if they employ primary care physicians, how many therapy clinics and providers they employ, and if they have narrow provider networks with health plans.
  2. ACO Analysis
    Analyze every ACO. Assess each ACO’s level of integration, willingness to use independent providers, value placed on physical therapy, extent of narrow network involvement, level of financial risk with commercial health plans, and who the ideal contact people are.
  3. Your Predicted ACO Concerns
    Review the 10 factors related to health care reform and the key factors independent practices must prove they can deliver.
  4. Define Your Value
    Analyze the likely needs and wants of the ACO decision makers and determine how your practice will meet their expectations. Answer key questions, address key points:

    • Do you have enough clinics in the area?
    • Do you have a plan to keep people in the ‘low cost part of the funnel’?
    • Can your therapists consistently manage their care to achieve predictable costs and outcomes?
    • Do you have outcomes data to prove your quality?
    • Name a leader to serve as contact person and negotiator
    • Determine who will hold therapists accountable for achieving expected outcomes and managing their care consistently.
    • Create 1-3 care model options to propose to the ACO that will reduce their TCOC related to musculoskeletal pain while still achieving measurable quality outcomes.
    • Key concepts: Quantifiable, Accountability, Collaboration, Teamwork.
  5. Get a Seat at the Table with the ACO Decision Makers
    Strategy in a Changing PT WorldYou must sell ACO decision-makers on the value of meeting with you. Your introduction and request for the short meeting must include your ability to reduce their costs, deliver quality, and provide convenient access.

    • Come to the meeting well prepared.
    • Have an outline of your ideas and proposal.
    • Ask questions. Listen. Find out their actual needs and expectations.
    • Ask directly if they are willing to work with an independent therapy group.
    • Move them from their ‘interest’ to their ‘needs’.
    • Don’t be discouraged. “The sale doesn’t start until they say ‘no’.”
    • The goal of your first meeting is to get a 2nd one on the books.
    • Don’t leave the meeting without a ‘next step’ and ‘call to action’ in place.
  6. Prioritize
    After you have met with all of the ACOs in your area, you must prioritize.

    • Put those with the greatest potential at the top of your priority list.
    • Focus on best potential.
    • Create follow up plans.
    • Keep your momentum going with an action plan, time frame, and accountability.

Creating a relationship with an ACO is not much different than working with health plans. Let’s face it . . . they have similar wants and needs. Lower TCOC and healthier people.

In Part 2, I’ll discuss “Strategies for Gaining Strength of Size . . . The MSO Model.”

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Jim Hoyme, PT, MBA

Jim is one of the principal owners of OSI Physical Therapy in Stillwater, Minnesota, a 9-clinic practice started in 1979. He is also one of the principal owners of Therapy Partners, Inc. (TPI), a management services organization (MSO) for 16 independent physical therapy practices with 32 clinics in Minnesota and Wisconsin.

Since 1999, TPI’s MOS has provided its clients with health plan contracting, revenue cycle management, and many other administrative services for members under a single tax ID number. TPI brings its members lower operational costs, improved payment per visit, and practice management services. They have engaged in a highly successful, value-based contract using FOTO outcomes with a large health plan since 2010.

TPI is positioned to expand its MSO services to practices in other states and is an excellent partner for start up practices.


  1. Excellent content! Topics and solutions so critical to our profession right now. Would love to engage in active discussion about some of these issues.

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