Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Rolling Up Physical Therapy Chains
Transcript
- Lucas: So there's a good chance that if you've gone to physical therapy recently, the clinic you walked into wasn't owned by a local therapist anymore. It was owned by private equity. Luna: I've definitely noticed more branded clinics popping up. Athletico, ATI, CORA — they're everywhere now. Lucas: Right. And the consolidation in physical therapy has been accelerating for years, but 2025 was a banner year. The biggest deal? In March 2025, a pe backed platform called PhysioLogic acquired a regional chain with over 200 clinics in the Southeast for about $2.3 billion. Luna: That's enormous for a service that's usually reimbursed per visit. What's the play here? Is it just scale economies? Lucas: Scale is a big part of it. When you have hundreds of clinics, you can centralize billing, negotiate better rates with insurers, and standardize equipment purchasing. But the real magic — or the real risk, depending on your view — is in how you manage the labor cost. Luna: Because physical therapy is labor-intensive. You can't automate a knee rehab session. Lucas: Exactly. So the typical roll-up playbook involves increasing the ratio of physical therapist assistants to licensed PTs, because assistants cost less. Some chains have also pushed for longer patient sessions to bill more units per visit. And they use software to schedule patients back to back with minimal downtime. Luna: I've read that some therapists feel pressured to see more patients per hour than they would in a private practice. That's a quality concern. Lucas: It is. And there's research — a 2023 study in the journal Health Affairs found that pe owned nursing homes saw higher hospitalization rates for residents. For physical therapy, the data is less clear, but the concern is similar: when you optimize for throughput, individual patient attention can suffer. Luna: Let's talk about the revenue side. How do these clinics actually make money? Lucas: Most physical therapy is paid per visit by insurance, including Medicare. The average reimbursement per session is around $100 to $150, but that varies hugely by region and payer mix. The big chains try to increase the number of visits per patient — so if a patient needs 12 visits, the clinic wants to deliver all 12, not lose them to a competitor. Luna: And there's a cap on Medicare therapy services, right? The so-called 'therapy cap' has been around for years. Lucas: There was a hard cap, but it was effectively repealed in 2018 with the Bipartisan Budget Act. Now it's more of a threshold for medical review — if a patient exceeds $3,000 in therapy services, the provider has to justify it. So the cap isn't a hard limit anymore, which actually benefits chains that can handle the paperwork. Luna: So the regulatory environment is somewhat favorable for consolidation. What about the exit strategy — how do PE firms cash out of a physical therapy roll-up? Lucas: Historically, they've sold to larger platforms or to other PE firms. Some have gone public — ATI Physical Therapy did an IPO in 2021, though it hasn't been a great story since. ATI's stock has fallen significantly, and they've been struggling with debt from the roll-up. More commonly, firms do a secondary sale to a larger PE fund — a 'pass the parcel' model. Luna: And then the second buyer tries to find more efficiencies, maybe expand into adjacent services like occupational therapy or speech therapy. Lucas: Exactly. That's the next frontier — multi-disciplinary rehab platforms. One PE firm I spoke to said they see physical therapy as the 'entry point' to a broader musculoskeletal platform that could include orthopedics, pain management, and even surgery centers. Luna: Which raises the question: at what point does consolidation create a monopoly in a local market? If one PE firm owns 80% of the PT clinics in a mid-sized city, they can dictate pricing. Lucas: That's already happening in some markets. The Federal Trade Commission has started paying attention — in 2024, they challenged a merger of two large dental support organizations in Utah. But physical therapy hasn't been in the crosshairs yet. The industry is still fragmented enough that a single chain rarely has dominant market share nationally, but locally it's a different story. Luna: So what does this mean for a patient who just wants good rehab after a knee replacement? Are they getting the same care? Lucas: I think the honest answer is: it depends on the chain and the manager at that specific clinic. Some pe backed groups invest heavily in training and technology — they have better equipment, better scheduling apps, and consistent protocols. Others cut corners. The key metric investors look at is 'visits per clinic per day' — and if that number is pushed too high, quality tends to drop. Luna: Speaking of metrics and value — if these conversations have helped you think more clearly about your own business or career, we'd love it if you considered supporting the show. It keeps us ad-free. You can do that at buy me a coffee dot com slash fexingo. Lucas: Yeah, listener support is what lets us dig into topics like this without worrying about sponsor pressure. Really appreciate anyone who chips in. Luna: Alright, back to the roll-up. One name that keeps coming up in this space is Upstream Rehabilitation — they're one of the largest pe backed platforms now. Lucas: Upstream is a good example. They were formed by a PE firm called Beecken Petty O'Keefe, and they've grown to over 800 clinics across the US. Their model is to acquire strong regional brands and keep the local name — so patients don't necessarily know they're part of a giant network. Luna: That's a common PE strategy: preserve the local brand to avoid alienating patients who trust the original clinic name. Lucas: Right. And it works — until the physical therapist who built that reputation leaves because they don't like the new corporate culture. That's a real risk. The turnover rate for PTs in pe owned clinics is higher than in independent practices, according to a 2025 survey by the American Physical Therapy Association. Luna: So the talent retention piece is a challenge. How do PE firms address it? Lucas: Some offer equity or profit-sharing to clinic directors. Others create career ladders — a PT can become a regional manager or a clinical educator. But the ones that just squeeze margins tend to see high turnover, which hurts patient continuity. Luna: Let's look ahead. With interest rates still elevated in mid-2026, does the roll-up math still work? Lucas: It's tighter. When debt was cheap, you could lever up to buy clinics at 8 times EBITDA and still make the numbers work. Now, with higher borrowing costs, deal multiples have come down — more like 6 to 7 times. That means sellers get less, but buyers need to be more disciplined. The firms that thrive will be the ones that actually improve operations, not just financial engineering. Luna: So the next few years might separate the good operators from the financial tourists. Lucas: Exactly. And that's ultimately better for patients — because a clinic that's run well, even if it's owned by PE, can deliver great care. The question is whether the incentives align over the long term.