Cash Based Physical Therapy. A Startup’s View.
Insurance based care is increasingly becoming more challenging. In this article, we quantify some hidden costs of insurance based care, highlight the non-obvious benefits of cash based physical therapy practices, and demystify the challenge of transitioning from insurance to cash.
Insurance reimbursement for care is becoming more challenging.
It’s a well-known fact that the US physical therapy and chiropractic care businesses are being negatively impacted by increased barriers to reimbursement from insurance companies. In fact, a recent physical therapy industry survey found that the top perceived threats to physical therapy business success in 2017 are:
Declining reimbursement rates,
Complexity and clinician unfriendliness of insurance, and
Government regulations .
Many of you have experienced this frustration personally. Maybe your reimbursement claim is being rejected. Or maybe you’re being reimbursed a fraction of the true cost of services rendered. Maybe you’re being demanded excessive proof of treatment and results.
In any case, as a result, you may have asked these questions. We have heard them from our clients many times as well:
How can I make up for declining physical therapy reimbursement rates?
Is cash based physical therapy a realistic option for my clinic?
Won’t I lose customers if I switch?
As a response to these challenges, many clinicians and clinician organizations advocate for increased support of political lobbying efforts. It’s a logical step. It is important for clinicians to convey the value of their practice in the healthcare system, the government, and most importantly, to the general population. However, there are many other variables at play. For the individual clinician, lobbying efforts are largely outside of your hands.
Let’s focus on a question and decision that is within your control: cash based vs insurance reliant.
Comparing insurance vs cash based physical therapy
First, it’s important to fully compare the two choices and understand some of the deeper consequences of each choice.
Insurance reliant hidden costs are heavier than the insurance reliant direct costs.
On the surface, insurance may seem great. Insurance reliant businesses certainly carry their positives. In-network coverage grants you access to in-network referrals and patients. Patients, covered by their insurance, don’t have to worry as much about their payments. The insurance company also benefits by extracting a profit from the surplus fees from healthier customers.
Patients aside, the direct cost of declining reimbursement is a zero-sum game between insurance and clinician. This cost is obvious and easily apparent in the economics of a clinic.
The hidden costs of a insurance reliant clinic are time, % revenue and additional resources required to deal with insurance companies to make sure claims are reimbursed.
CPT code billing time & billing cost Billing is complicated by having to collect copays from patients, as well as submitting assessment notes and CPT codes to the insurance company. This is not a trivial exercise, and creates a lot of office and documentation work and headaches. Some private practices elect to outsource billing and the reimbursement workstream to billing companies, who can charge anywhere around 6% – 8% of revenue reimbursed. To add insult to injury, not all reimbursement claims are accepted and anecdotal discussions show that insurance reimbursement rates are declining, while documentation requirements increasing.
Experts at The University of Michigan found that ~30% of PTs time can be spent on performing documentation and paperwork for billing reimbursements . This valuable time can be used to treat patients instead. So if you are running a 3 PT clinic and you switch from an insurance model to an all cash model, you are effectively freeing up as many resources from your current staff as adding another PT.
Cash Flow & Net Working Capital Adding billing and reimbursement steps inevitably delay the insurance reliant clinic cash flow. In cash flow terms, the choice of cash based physical therapy and insurance reliant private practice can be summed up in the following way:
Cash based physical therapy: do you want $110 now?
Insurance reliant private practice: do you want $102 ($110 (-7% for billing)) a few weeks later, after your clinicians spend up to 30% of their time creating paperwork for reimbursement?
0.1% – 1% of revenue can be attributed due to a delay in receiving cash. For some clinics, especially upstart clinics, this reduction in net working capital can be the difference between having to take out another small business loan or not. The net loss of working capital due to delays in reimbursement can result in a delay of investment into the clinic (e.g. marketing, staff, equipment etc.).
The economics of cash based physical therapy strongly support the consideration of adding services tailored towards cash paying customers such as the athlete without an injury.
Self-selection of patients causes different behaviors.
Let’s take a look at the patients who seek out physical therapy at two hypothetical clinics:
Insurance reliant Riley, and
Cash based Casey.
Is your patient injured? Is you patient an insurance patient?
For simplicity, let’s assume that insurance reliant Riley’s clinic is a 100% insurance based clinic, and that cash based Casey’s is a 100% cash based physical therapy clinic. Chances are that many clinics cater to a mix of insurance and cash clientele.
Insurance Reliant Riley
Insurance reliant Riley sees the insurance patient. The insurance patient is recovering from injury. This patient was referred to your clinic through the in-network insurance system. Chances are they don’t care too much about the treatment process and want to see instant results. The insurance patient’s mindset ultimately leads to higher churn. Higher churn manifests itself in lower likelihood of treatment adherence, and worse results. At the beginning and end of the day, the insurance patients tends not to value to the services received. Your clinic’s services are easily replaced by others in-network.
Cash based Casey
Cash based Casey’s patients could be injury recovery patients. They could also be athletes, who are not recovering from injury, but rather seeking athletic maintenance and preventative care. Regardless of their situation, cash based Casey’s customer more likely deeply cares about the treatment process and systematically scoured her or his network to find the best provider for them. This customer did their research at-home and educated themselves on what they know, what they don’t know, and how you can help them with your skillset. This customer is already better than the insurance patient. Because the customer spent the time to understand the importance of treatment they will show higher treatment adherence. In turn, this customer will see better results, more satisfaction, and will value your skills and services rendered. Upon successful process and discharge, the performance customer will refer you to their friends. Because the customer spent the time and effort to understand what skills and experiences your clinic brings, it will be more difficult for your clinic to be replaced with another.
Additional services Both insurance reliant Riley and cash based Casey understand the value of retaining and staying in touch with their customers post-separation. However, once the insurance patient starts to feel “better”, they leave insurance reliant Riley’s clinic and do not come back. If they experience pain or injury again, they may come back, or seek attention at another in-network PT clinic.
Cash based Casey’s customers care for their bodies before, during, and after their treatment. They understand the value and importance of preventative care, and are more willing to perform further maintenance work throughout their lives. Naturally, they are more open to hearing about and considering new preventative assessment and treatment protocols), which will help them gain an edge by staying healthier and injury-free. The new preventative assessment and treatment protocols naturally lend themselves to great marketing for cash based customers and standing out from the competition.
Additional services provide incremental cash flow for physical therapy clinics. 
Switching from insurance reliance to cash based physical therapy doesn’t have to be scary
The switch seems daunting
Client referrals for the insurance reliant Riley tend to come from local, in-network doctors and hospitals. Now that you are thinking of switching towards a cash based physical therapy model, you will have to take on customer generation. However, building up a strong client referral game will make you less reliant on insurance, and further protect your business from healthcare industry risk. Cash based physical therapy marketing is a wonderful opportunity to better get to know and integrate with complimentary physical health professionals in your community .
But will customers pay cash for my clinic’s services?
Customers pay cash for plenty of services. Why not your clinic’s?
Outside of the physical therapy and chiropractic world, consumers are electing to spend $100 to $200 on genetic testing that may not tell you much and provide few if any actionable steps to improve health. Medical and dental check-ups are widely accepted and they make sense. These screens are designed to catch issues before they turn into larger and more expensive problems. Customers might pay $100s to get their car inspected and tuned up to make sure it’s moving properly and doesn’t leave them stranded or in danger.
We think it’s not too far a stretch to imagine an athlete (not the general population) would be interested in a sports physical and preventing poor form / non-contact injury. And what if we could get the non-athlete to get a physical health check-up?
At EuMotus, we see the cash based Casey’s not only survive, but thrive because they:
Provide excellent customer service, which they proudly announce through their touch points and marketing with their clients,
Offer performance focused physical therapy services, such as a sports physical, tailored towards the performance cash paying customer, and
Hedge against a volatile insurance ecosystem by moving towards cash paying customers.
Ultimately, your standard of care is yours to control. You will still be able to provide the great treatment, the pain relief, the injury recovery, that your patients seek. You will be able to improve your patients’ physical health and wellness independent of this decision. You will move your clinic upstream, by working with your customers and encouraging them to own their health and focus on preventative care. By considering this switch, however, you are making sure that your business can thrive and truly benefit from your skills.
If you’re considering or practicing cash based physical therapy, check out how EuMotus BodyWatch movement analysis software can help your clinic.
Considering integrating cash generating movement analysis software into your business?
 Top 3 threats facing PTs, OTs and SLPs. WebPT. https://www.webpt.com/blog/post/therapy-heroes-assemble-how-to-fight-the-top-3-threats-facing-pts-ots-and-slps. Accessed November 2017.
 Gnanapragasam, J. Stelter, K., Wang J. Analysis of Therapists’ Non-Patient Care Activities. Pediatric Physical & Occupational Therapy Inpatient Department. University of Michigan Health System. Dec. 2009. Accessed November 2017.
 Bureaucracy paperwork. Geisteskerker via Pixabay. https://pixabay.com/en/bureaucracy-aktenordner-paperwork-2106924/. Accessed November 2017.
 Piggy bank. Skitterphoto via pexels.com. https://www.pexels.com/photo/money-pink-coins-pig-9660/. Accessed November 2017.
 Maximize PT-AT relationship in a high school setting part 1. Fox, Z for medbridgeeducation.com. https://www.medbridgeeducation.com/blog/2016/04/maximize-pt-at-relationship-high-school-setting/. Accessed November 2017.
 Maximize PT-AT relationship in a high school setting part 2. Fox, Z for medbridgeeducation.com. https://www.medbridgeeducation.com/blog/2016/06/maximize-pt-relationship-high-school-setting-part-2/. Accessed November 2017.