The Algebra of Physical Therapy: Understanding the Economics
How the Outpatient Physical Therapy Business Model Really Works
Outpatient physical therapy is one of the most essential, and sometimes, misunderstood components of the musculoskeletal care ecosystem. For patients, it feels simple: you show up, work with a therapist, make progress, and (ideally) return to full function. But behind the scenes, outpatient PT is a business model built on labor-intensive care delivery, some regulatory constraints, complex payer dynamics, and fairly thin operating margins.
Here I’ll break down how the outpatient physical therapy model works economically, why the margins are what they are, and where the industry is heading. It will be particularly useful for new graduates, managers who run clinic operations, or those thinking about starting their own clinic.
This article is just a starting point, so I will keep things fairly simple and provide numbers as examples/estimates. If there is more interest in this topic, I’ll be happy to dive deeper in the future.
One more important point…this article is assuming that the business primarily functions as an in-network practice. There are some practices that do not rely on private or public insurance and function on out-of-network or cash-based business models. There are differences in those models, which I won’t get into here.
1. What Outpatient PT Actually Sells
Before we get into the numbers, it’s important to understand the product. What is it exactly that we as therapists get paid for?
At its core, outpatient PT sells- billable units of therapist time. That’s it.
A “unit” is typically a 15-minute increment, and therapists bill for a mix of:
Evaluation codes (initial visit assessments)
Therapeutic exercise
Manual therapy
Neuromuscular reeducation
Modalities (heat, e-stim, etc.)
Most therapists bill 3-5 units per visit, depending on state law, plan of care, and patient complexity.
Volume is everything. Because reimbursement per unit is low, the sustainability of a clinic depends on seeing enough patients per day to cover labor, which is the single biggest expense.
2. Where the Money Comes From
Payer Mix Drives Revenue
A clinic’s revenue is a blend of:
Commercial insurance (typically higher reimbursement)
Medicare (reliable but usually lower rates)
Workers’ compensation (can be higher reimbursement, but more paperwork)
Cash services (growing segment)
Medicaid (reimbursement often below cost of service)
Capitated or value-based arrangements (emerging but still very rare)
The exact numbers will vary on setting, company size, geography, and a host of other factors, but here are some general numbers.
Commercial payers typically reimburse $80-$120 per visit. Much more if out-of-network benefits are there.
Medicare reimburses $70–$120 depending on geography and unit mix.
Cash pay ranges from $85–$150 per session (and sometimes much more, often completely margin-positive).
The right payer mix can be the difference between a thriving clinic and a struggling one.
3. Major Cost Drivers
Outpatient PT is a labor-intensive business. An example cost structure looks like this:
A. Clinical Labor (55-65% of costs)
This includes:
PT salaries
PTA salaries
Benefits
Continuing education requirements
Hiring and retention costs
Because care is very difficult to automate and is highly regulated, clinics rely on clinicians delivering hands-on or supervised care. Many clinics skirt around some of these costs by using non-licensed labor (this is not legal, nor reimbursable, but that’s a conversation for a different day).
B. Rent and Facilities (10–20%)
A typical clinic may be 2,000–4,000 sq ft, with costs varying by market. While PT does not require the equipment intensity of a gym, it does need enough space for treatment tables, open movement areas, and private rooms.
C. Administrative Overhead (10–15%)
Billing teams, front desk staff, scheduling, prior authorization, compliance all fall here. PT is documentation-heavy and requires significant clerical work.
D. Supplies, Equipment, and Miscellaneous (5–10%)
Therabands, exercise equipment, cleaning, EHR licenses, and more.
Margins are thin. A well-run clinic may achieve 20% EBITDA, while underperforming clinics may struggle to break even.
4. The Throughput Equation
The key operational challenge is achieving efficient throughput without compromising care. This is the crux of the problem in volume-based clinics.
Most clinics rely on:
45–60 minute initial evaluations
30–60 minute follow-up sessions
One PT seeing 10-15 patients per day
Support from PTAs and techs to increase capacity
A clinic typically needs ~25 patient visits per therapist per week just to cover salary-more for profitability (and possibly more depending on salary and payer mix).
5. Multi-Clinic Organizations: How Scale Changes the Model
Large PT groups operate 20, 50, or even 100+ clinics. Scale brings advantages.
You get centralized billing and revenue cycle, negotiating leverage with payers (especially if you are dominant in a particular region), and shared of marketing/recruiting/training costs.
But scale also introduces challenges like maintaining culture, ensuring quality across locations, keeping clinician burnout low, managing increasingly complex HR and compliance requirements.
Bigger isn’t always better, but it is the way of things in healthcare.
6. Trends Shaping the Future of the Outpatient PT Model
A. Consolidation
Physical therapy as an industry is largely fragmented (meaning it is dominated by small, independent clinics rather than a few large national chains). Private equity and larger strategic buyers have been actively acquiring outpatient PT practices and building larger platforms.
B. Shift Toward Value-Based Care
Payers are experimenting with episodic payments or outcome-based bonuses, particularly those that involve multiple providers (not just PT). While promising, these arrangements require a lot of data infrastructure, consistent clinical pathways, and arrangements which are quite rare in the PT-world.
C. Hybrid Virtual/In-Person Models
Technology is allowing for remote exercise supervision, symptom tracking, and adherence. Clinics that combine hands-on care with digital follow-up may reduce no-shows, extend care plans, and improve outcomes if done correctly. Telehealth has also expanded significantly since COVID and with the rise of artificial intelligence, Digital MSK has become a competitor for the standard brick-and-mortar PT clinic.
D. Increased Demand Driven by Aging Population
By 2030, we’re going to have a lot more Americans over the age of 65. This will undoubtedly create more demand for non-pharmacologic, non-surgical interventions for chronic MSK conditions.
E. Labor Pressures
Besides the increasing demand, there is a national shortage of PTs created by the educational bottlenecks in training PTs, worsening reimbursement rates, massive student debt, and increased burnout and turnover of therapists leaving clinical care. There are entire forums, groups, and courses now dedicated to non-clinical roles for “recovering clinicians”, some of which contain the most talented clinicians leaving the profession entirely to pursue other fields.
E. Employer Partnerships
Direct-to-employer MSK management and early PT access reduce downstream medical costs, creating new business opportunities. However, these markets have become very saturated in the last few years and difficult to break into.
7. Why the Model Works…Despite Thin Margins
Despite all the above, Outpatient PT still works because on a fundamental level it still largely delivers high patient satisfaction, good clinical outcomes, some cost savings, and recurring, predictable visit volume for business owners, PE firms, and strategics.
It’s not a high-margin business…but it is a high-value one, both clinically and economically.
For health systems, insurers, and employers, PT still remains one of the best investments in musculoskeletal care.
For patients, it’s a pathway back to movement and independence.
And for clinicians, it’s meaningful, relationship-based work supported by an increasingly sophisticated operational engine.