Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Physical Therapy Clinics
Transcript
- Lucas: If you've ever pulled a hamstring or had knee surgery, you've probably ended up in a physical therapy clinic. And if you went back to that same clinic two years later, there's a decent chance the name on the door had changed but the real ownership was completely different — a private equity firm you've never heard of. Luna: Right, it's one of those quiet roll-ups that flies under the radar, but it's huge. How big are we talking? Lucas: The US outpatient physical therapy market is about $35 billion a year, and it's still remarkably fragmented. There are roughly 40,000 clinics — mostly single-location shops run by a PT who hung out a shingle. But over the last decade, PE firms have been buying them up, one town at a time. Luna: What's the appeal? I mean, a PT clinic isn't exactly a high-margin software business. Lucas: That's the thing — it's not about the margins at the individual clinic level. It's about the aggregate cash flow. Physical therapy has what investors call 'recession-resistant' demand. People get hurt regardless of the economy, and insurance — especially Medicare — covers a lot of it. So you get a steady stream of patients with predictable reimbursement. Luna: Plus, it's a service you can't outsource overseas or replace with an app. Lucas: Exactly. So the PE playbook goes like this: buy a bunch of single-location clinics in a region, then merge them under one corporate umbrella. You centralize the billing, the marketing, the IT, and the payer contracting. Suddenly, a mom and pop clinic that was paying 15 percent to a third-party billing company now has an in-house team doing it for 5 percent. That margin expansion is real. Luna: And the clinics keep their local name, so patients don't even realize they've been bought. Lucas: Yeah, very few of those local clinics rebrand. You'll see 'Smithville Physical Therapy' on the sign, but the real owner is a platform called, say, 'ProRehab Holdings,' backed by a PE firm. That's the hub and spoke model: one central hub handles all the back office, and the spokes just see patients. Luna: I've seen some of the big players — ATI Physical Therapy, Select Medical, Concentra. Are those all pe backed? Lucas: Select Medical is publicly traded, but they've done their own roll-ups. ATI was pe backed for years before it went public in 2021, and it's had a rocky ride since. The pure play private equity platforms are often smaller — think regional chains with 50 to 200 clinics. One example: in early 2025, a firm called MBF Healthcare Partners acquired a chain of about 150 clinics across the Southeast for roughly $2.3 billion. Luna: Two point three billion for clinics that mostly treat backs and knees? That's a lot of co-pays. Lucas: It is, but the logic is that by the time you have 150 clinics, you have negotiating power with insurers. You can say to UnitedHealthcare, 'Give us a better reimbursement rate, or we'll drop your plan in all our locations.' A single clinic can't do that. A platform can. Luna: Okay, so that's the upside for the investors. But what about the patients? Does the quality of care change when a PE firm takes over? Lucas: That's the billion-dollar question, and there's some real data now. A study published in JAMA in early 2025 looked at patient outcomes at pe owned vs. independent PT clinics. They found that pe owned clinics had slightly higher patient volume per therapist — they pushed through more patients per day — but patient satisfaction scores were marginally lower. However, functional outcomes — like can you walk again after hip replacement — were about the same. Luna: So the care isn't worse, but it's more... transactional. Lucas: That's a good word. Critics argue that when a clinic is part of a platform, the therapist is under pressure to see more patients in less time. You go from 45-minute sessions to 30-minute sessions. And sometimes the therapist is an assistant, not the full PT. The trade-off is access — there are more clinics in more locations, so you can often get an appointment sooner. Luna: I've also heard that some PE firms are buying up not just clinics but the staffing agencies that supply travel PTs. Is that part of the play? Lucas: It is, and it's a clever vertical integration. If you own both the clinic and the temp agency, you can capture the margin on both sides. The same parent company bills the clinic for the therapist and bills the insurer for the therapy. That's been a trend in the last couple of years, especially as the labor market for PTs has tightened. Luna: So the roll-up is becoming a roll-up of the whole ecosystem. Lucas: Exactly. And the thing that makes this durable is that the underlying demand isn't going away. The population is aging, Medicare Part B covers outpatient PT, and more people are electing for joint replacements earlier. The American Academy of Orthopaedic Surgeons projects that by 2030, total knee replacements will increase by 180 percent from 2010 levels. Luna: So for a PE firm, it's a demographic tailwind that's basically guaranteed. Lucas: Right. But there's a regulatory risk. Medicare is the biggest payer, and if the government decides to cut reimbursement rates — or change the rules around 'incident-to' billing — the whole model could get squeezed. That's probably the biggest unknown. Luna: Before we get into the future, this is the kind of deep, specific analysis that makes this show worth listening to week after week. And it's only possible because listeners like you support it directly. If these conversations have moved your work forward in some small way, a couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo. Every bit helps us stay ad-free and independent. Lucas: Yeah, it really does. We don't have a big media company behind us, so listener support makes a real difference. And we're grateful for it. Luna: So, back to the regulatory risk — is there a specific policy change that the industry is watching right now? Lucas: Definitely. The big one is the '50 percent rule' — Medicare requires that at least 50 percent of a PT clinic's revenue come from in-person, face to face visits. That sounds fine, but with telehealth expanding, some pe owned clinics have been pushing the boundaries of what counts as 'in-person.' CMS has proposed stricter audits, which could hurt platforms that rely on high volume and remote supervision. Luna: So there's a tension: the PE model wants efficiency and scale, but Medicare wants to ensure that a PT is actually in the room. Lucas: Exactly. And that's playing out in real time. Another angle is that some states have started requiring more transparency around corporate ownership of healthcare providers. California and Washington have introduced bills that would mandate disclosure of PE ownership in PT clinics. If that goes national, it could change the acquisition math. Luna: Because if patients know their local clinic is owned by a New York PE firm, they might go elsewhere. Lucas: Right — the whole strategy relies on the local brand staying local in the patient's mind. If that trust erodes, the model breaks. But for now, the deals keep happening. In just the last quarter, I counted eight announced acquisitions of PT platforms with more than 20 clinics each. Luna: And are the sellers happy? I mean, the PT who built the clinic for 20 years, they get a big check and usually stay on as a manager, right? Lucas: Typically yes. The earn-out structure is common: the founder sells for an upfront sum, then gets additional payments if the clinic hits growth targets over three to five years. So they have an incentive to keep working hard. But some founders I've spoken to say the culture changes fast. The autonomy goes away, and they're suddenly reporting to a regional VP who doesn't know the local referral sources. Luna: It's a classic tension in any roll-up: the people who made the business special can end up feeling like cogs in a machine. Lucas: Yeah, and that's the risk for the PE firm too. If the key clinicians leave, the clinic's reputation suffers, and patients follow. So the smart firms invest in retention — equity incentives, career paths, that sort of thing. The extractive ones just squeeze and flip the platform. Luna: So for a listener who might be a PT or thinking about selling their clinic — what should they look for in a buyer? Lucas: Look at the firm's track record with other clinics. Ask for references from founders who sold two or three years ago. Don't just look at the price — look at the earn-out structure, the autonomy you'll have, and the long-term plan. And talk to an advisor who knows healthcare M&A, because these deals are getting more complex. Luna: Sound advice. So what's next? Are we going to see PE firms start buying up pediatric PT, or occupational therapy, or speech therapy? Lucas: They already are, actually. Speech therapy and occupational therapy are even more fragmented than PT, and the demographics are just as strong. I think the big untapped area is in-home PT — where the therapist comes to the patient's house. That model has higher margins because there's no rent, but it's harder to scale. Some PE firms are experimenting with it. Luna: Fascinating. So the physical therapy roll-up is still in its middle innings — lots of consolidation left, but the easy deals are done. Lucas: I'd say we're about at the end of the second inning. There are still thousands of independent clinics, and the larger platforms are hungry. Expect to see more $1 billion-plus deals in the next 18 months.