Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Physical Therapy Chains
Transcript
- Lucas: If you've pulled a hamstring or had knee surgery in the last five years, there's a decent chance you ended up at a physical therapy clinic that's owned by a private equity firm. And you probably didn't even know it. Luna: I actually did notice when the clinic near my old apartment changed names and suddenly had a glossy website and a central billing number. It felt more corporate. Lucas: Exactly. That's the tell. The physical therapy industry has been quietly consolidated to a degree that most patients don't realize. By some estimates, private equity-backed platforms now operate roughly 25 to 30 percent of all outpatient PT clinics in the United States. Luna: That's huge. And it happened pretty fast, right? I feel like five years ago this wasn't a thing. Lucas: It really accelerated around 2017, 2018. There were a few big platform deals — companies like ATI Physical Therapy, Select Medical's outpatient division, and US Physical Therapy. But the deal that really kicked things off was the 2019 acquisition of a chain called Physiotherapy Associates by a private equity firm named AEA Investors. Lucas: That deal created one of the largest PT platforms in the country, with over 600 clinics. And since then, the big players have been buying up smaller regional groups like crazy. Luna: So what makes a physical therapy clinic such an attractive target for private equity? It's not exactly a high-tech industry. Lucas: It's actually a perfect fit for the roll-up model. Think about it: PT clinics are small businesses, usually owned by a single physical therapist. They have steady, recurring revenue — people don't stop needing rehab. And they operate on relatively predictable cash flows. Lucas: Plus, there's a massive fragmentation. There are thousands of independent clinics across the country. So a private equity firm can come in, buy a dozen or so in a region, consolidate back-office functions, standardize billing, negotiate better rates with insurers, and then sell the platform to a larger buyer or take it public. Luna: And that's exactly what happened with ATI. They went public via a SPAC in 2021, right? Lucas: That's right. ATI Physical Therapy merged with a SPAC called Fortress Value Acquisition Corp in a deal that valued the company at over $1 billion. At the time, ATI had about 900 clinics. The pitch was that they could grow to over 1,500 locations and really dominate the market. Luna: And how did that work out? Lucas: Not well. Since the merger, the stock has fallen from around $10 to less than a dollar — down over 90 percent. The company's been bleeding cash, they've closed dozens of clinics, and they recently announced they might have to restructure their debt. Luna: Yikes. So what went wrong? Was it the SPAC structure, or something specific to physical therapy? Lucas: It's a combination. The SPAC deal loaded ATI with a lot of debt. But there's also a fundamental tension in the private equity model when applied to healthcare services. The goal is to increase patient volume and reduce costs. But in physical therapy, each patient requires a licensed clinician's time. You can't just stack more patients in a room. Lucas: So the pressure falls on the therapists. They're asked to see more patients per day, often double-booking or using unlicensed aides to perform parts of the treatment. That burns out clinicians and can lead to worse patient outcomes. Luna: And then you get a reputational problem. Patients start leaving bad reviews, therapists quit, and the whole thing unravels. Lucas: Right. And there's another layer: Medicare reimbursement changes. In 2020, Medicare implemented a new payment model for outpatient therapy called the Patient-Driven Groupings Model, which caps how much clinics can bill per episode. That squeezed margins across the industry. Luna: So private equity firms probably underestimated the regulatory risk. Lucas: I think they did. The early roll-ups assumed that reimbursement rates would keep rising or at least stay flat. But Medicare has been actively trying to reduce spending on therapy services. And since a large portion of PT patients are on Medicare, that's a direct hit to revenue. Lucas: That said, the bigger firms are adapting. Some are shifting toward cash-pay models, where patients pay out of pocket for specialized services like pelvic floor therapy or sports rehabilitation. That avoids insurance headaches entirely. Luna: Look, I want to pause here for a second because I think this is a good moment for a quick reflection. You know, we do these shows every day, and we try to bring real, usable context to these deals. If today's episode gave you a clearer picture of how your own PT clinic might be owned by a private equity firm, and that's worth a coffee to you, honestly, that's the link — buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small thing, but it genuinely helps keep this show ad-free and independent. So thanks for considering that. Now, back to the consolidation story. Another trend we're seeing is private equity firms buying up physical therapy staffing agencies. Luna: Oh, interesting. So instead of buying clinics, they buy the companies that supply the therapists. Lucas: Exactly. There's a company called Aureus Medical, owned by AMN Healthcare, that places physical therapists in hospitals and clinics. Private equity has been circling those kinds of firms because they benefit from the staffing shortage. There are simply not enough physical therapists to meet demand. Luna: And that shortage gives the staffing agencies pricing power. Lucas: Absolutely. A travel physical therapist can earn $2,000 a week or more. The agency takes a cut. And since clinics need therapists to keep their doors open, they're willing to pay. So it's a different angle, but same thesis: find a fragmented, essential healthcare service, consolidate it, and extract margin. Luna: But is there a backlash building? I've seen physical therapists organizing on social media, sharing stories about productivity quotas and burnout. Lucas: There is. There's a group called the Physical Therapy Private Equity Watchdog that tracks acquisitions and publishes reports. They've documented cases where patient satisfaction scores dropped after a private equity takeover. And the American Physical Therapy Association has issued position statements urging caution. Lucas: Some therapists are leaving large chains to start their own boutique practices, often cash-based, where they can spend 45 minutes with a patient instead of 15. That's a counter-trend we're watching. Luna: So the pendulum might swing back toward independence, at least for high-end or specialized care. Lucas: It could. But the economics of running a cash-pay practice are tough for most patients. Medicare doesn't cover it. So you're really serving a niche. For the mass market, the private equity model probably isn't going away — it's just going to get more sophisticated about managing clinician satisfaction. Luna: What about the big public companies? Are they any better? Lucas: Select Medical — which is publicly traded — operates over 1,800 outpatient clinics under brands like NovaCare and Kessler. They've been around for decades and have a more established reputation. But even they face pressure from investors to improve margins. It's a tough business because labor is the biggest cost and it's hard to replace. Luna: So what's the one thing a listener should take away from this episode? Lucas: The next time you walk into a physical therapy clinic and the logo looks like it belongs on a bank, there's a good chance a private equity firm owns it. The question is whether that clinic can balance the pressure for profit with the need for actual therapeutic outcomes. And right now, the data is mixed at best.