Service Line Management

Why hospital outpatient physical therapy is a good revenue source I HFMA

August 2, 2019 1:31 pm

Often overlooked by health systems, outpatient physical therapy programs can provide hospitals with significant revenue and patients with high-quality care.

John Britt

Although many hospitals and health systems view outpatient physical therapy as ancillary and not worthy of a substantial allocation of resources, making it a priority makes good business sense considering the payment landscape for such services and the value they provide above and beyond the financial realm.

Beginning January of 2020, the Centers for Medicare & Medicaid Services will provide payment to home health agencies based on patient characteristics versus the volume of therapy visits.1 Home health agencies are soaking in this information and developing strategies to serve a mix of patients whose needs lean more toward medical interventions instead of therapy.

The need for therapy for these patients, however, does not magically go away because the regulations changed. Post-acute physical therapy services not currently labeled inpatient are home health and outpatient services.

This evolution of the home health regulations leaves a gap for those patients who do not meet the admission criteria of the other levels of care. It is here that hospitals have a unique opportunity to look at the delivery of their outpatient therapy services in a way that can meet the needs of some of these patients.

Benefits of providing high-quality outpatient physical therapy

When a hospital owns and provides outpatient physical therapy, leadership can ensure that patients get one-on-one time with their therapists. The chances for continuity of care also improve when the hospital-based outpatient therapists have ready access to the medical record. If a patient received therapy as an inpatient, the outpatient therapist can review the record, talk with the inpatient therapist and discuss any other psychosocial issues with the discharge planner. Another potential benefit is improved efficiency for hospital physicians, resulting from their being able to access and review the plan of care and sign the required documents electronically.

Financial leaders should meet with their therapy leadership to confirm they provide such care. They also should communicate to their employed physicians that the hospital-owned outpatient physical therapy service is available and explain to them how the service benefits both the patient and the hospital.

Discharge planners also should be informed of the availability of the service and its potential patient-health benefits so they can be sure to highlight the service and health benefits to patients. Some discharge planners might not be aware of the size and scope of services. The pace and dynamics of discharge planning along with the increasing use of hospitalists have caused  many hospitals to experience a significant decline in referrals to the outpatient service area.

The case for the profitability of outpatient physical therapy

Medicare continues to pay on a fee schedule, and many commercial health plans also pay on a fee schedule or a percentage-of-charge basis. Although Medicaid poses a challenge in many states because of low payment, a well-run hospital-owned therapy service should not only create a positive margin but also be profitable.

One area that affects profitability is the increasing financial demands on patients. Hospitals should design a practical point-of-service patient financial alternative in the outpatient physical therapy department. Outpatient therapy is a recurring service, and the impact of copayments, in particular, can create an actual or perceived hardship for patients.

Consider this scenario: Mrs. Smith is two weeks post-op, and her surgeon has ordered outpatient physical therapy. After the physical therapy evaluation, the therapist recommends a plan of care including three sessions per week for four weeks. However, Mrs. Smith knows that she has a copay of $50 per visit and is concerned about the financial hardship of spending $150 per week for four weeks. When she relays this concern, her therapist spends some time going over activities she can do at home on her own and those not appropriate to do alone at home, along with instructions about when to follow up with her physician.

If, however, she is too embarrassed to discuss her financial situation with the physical therapist, she might agree to the sessions he recommends and then simply never schedule them, which could leave her at risk.

Although most hospitals have designed alternatives for one-time, higher-priced services (surgery, advanced imaging, etc.), recurring, incremental services such as outpatient therapy often get overlooked. These alternatives should include a frank, up-front conversation with patients about their ability to fulfill their
financial responsibility.

The health benefits of early physical therapy referral

Outpatient physical therapy can bolster the clinical outcomes of patients seen by the hospital’s physicians. Many patients with functional decline and/or pain issues are more likely to
show improvement with treatment from physical therapy and less dependency on opioids. Increased improvements in patient health, mobility and pain level also equate to better satisfaction scores, which can benefit the hospital’s reputation and its bottom line.

For example, a recent study determined that when patients with low back pain were referred immediately to outpatient physical therapy (as opposed to getting referred to a specialist or getting therapy at a later date), there was an 89% lower chance of the patient requiring an opioid prescription.

This practice of early referral to outpatient therapy also effects value-based purchasing. The same study showed that advanced imaging studies for these patients who were referred immediately to outpatient physical therapy were reduced by 28% and that emergency department visits were reduced by 15%.

Why physician integration is all-important

The electronic health record can assist physicians in making referrals to outpatient therapy by prompting the providers during an office visit to consider outpatient therapy as part of the treatment regime. Many patients with sprains and strains come to their primary care physicians’ offices looking for pain relief and advice. Although many of these patients do not require referral to an orthopedic surgeon, they could benefit from physical therapy. Therapy management should ensure the physicians understand outpatient therapy’s scope of service and design processes to match their patients’ functional needs with the therapy services.

With the appropriate focus and allocation of resources, outpatient physical therapy can be instrumental in meeting and exceeding the expectations of the patients, community, employees, physicians and hospital leadership. There is a definitive revenue opportunity for the hospital and improved outcomes for patients. But beyond the obvious, the implications for outpatient therapy may include helping patients avoid opioids, enhancing relationships with physicians and improving performance for value-based purchasing. It is time to stop considering outpatient therapy as a cost center and to begin considering the multiple layers of value the service provides. 


1 Centers for Medicare & Medicaid Services, “CMS finalizes calendar year 2019 and 2020 payment and policy changes for home health agencies and home infusion therapy suppliers,” Oct. 31, 2018.


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