Are You Overdue for a Billing Strategy Upgrade?
The CEO of Physical Therapy Billing Services joins Paul to discuss the return on investment of outsourcing revenue cycle management and how PT business owners can decide if it is right for their practice.
Full transcript
Generated from the episode audio and lightly edited for readability.
Good afternoon and welcome to another episode of Paul Martin's Crucial Conversations. I'm Paul Martin, founder and president of Martin Healthcare Advisors. And today we are jumping into an innovation category of a series that we are running right now at I think a very optimum time, which is how can rehabilitation business owners make great decisions for your business in 2025. And I'm really excited to have with me today, we have never talked to this individual in the past. So, we got somebody new here, Lou Marinaccio. So, welcome Lou.
Thanks, Paul. Glad to be here. Excited to spend some time with you. Absolutely. Absolutely. So, Lou is the current CEO of Physical Therapy Billing Services. Physical Therapy Billing Services is a revenue cycle management company. There's many of those in the industry today. And their service will service all sizes of PT practices from companies looking to just get started to very large established practice practices. Lou is also the managing partner of a private equity firm called Parkstone Growth Partners. And I think as we go through our discussions today, Parkstone Growth Partners is a sponsor for physical therapy billing services.
So very unique I think a the amount of capital that can be involved in making this a real slick platform and service as well as somebody that's kind of living on both sides of a private equity investment which actually working on the provider side as well. So Lou, let's jump in with some questions. Let's start with return on investment. What do you see is the long-term value proposition or let's call it return on investment of physical therapy businesses outsource outsourcing billing again for a PT company.
Well, first of all, thanks for having me, Paul, and I appreciate the opportunity to speak with the your audience today and hopefully get to know you and them over time. I think in terms of return on investment is a great place to start. Obviously, it's the number one financial metric at the end of the day for decision- making. I think the what we found is that the return on investment from outsourcing RCM can be quite compelling both qualitatively and quantitatively. You might think about quantitatively first because it is about collections and revenue and you know what we have seen in numerous studies that we've reviewed is that across the entire health care spectrum from the largest to the smallest providers RCM is reported to deliver on average about 5% more revenue than in-house billing in a like forlike comparison there numerous sources numerous studies that have been done and that's about the average for identically sized practices and claims that are submitted.
What what's interesting in our own business at physical therapy billing services, which I'll call PTBS to make it easy for the rest of this conversation, we see an average of almost a 40% increase over three years when a client joins us in their revenue. Wow. You see, yeah, it's phenomenal and it's and it's fun and we all win together. And this comes from collections that are just more professionally and expertly managed. They're more quickly and consistently filed. They're cleaner. They're submitted timely. Denials and AR are actively and aggressively managed on behalf of the client.
And patient balances, which is really important, are actively pursued in ways that sometimes practices aren't comfortable going after. Of course, nothing on the benefit side comes without a cost, thus the return on investment. You know, we see generally speaking, we and other billers are paid on a percent of sales. So we only get paid after the practice gets its cash. We bill once a month. And so what's fun about that is that the practice already has the cash in their bank before they even have to write the check for us on like payroll.
And when you factor in the revenue growth the ability to reduce costs and headaches of in-house staff against that lift in revenue what you see is even net of the cost of sales there's a multiple of the investment in outsourced billing without the headaches and significantly cheaper qualitatively you know fundamentally no PT practice gets in to PT physical therapy to do administration and operation pat. So just on the very nature of it, having less time and headaches and having more time to deal with treating patients is the is the value proposition.
And I'm hoping someday, Paul, we can figure out how to quantify how happiness in practice translates to longevity, lower burnout that in some way shows a longer career ROI for the individual providers. Yeah. No, no question. Most physical therapy business owners as you know are like myself first became a physical therapist before they became a physical therapy business owner. So the therapy came before business. Hence as you just said some of those administrative tasks tend to add up and you know are very burdensome for many many outpatient physical therapy CEOs even as the companies get larger.
How do you see that you know the shift that this shift going from in-house to you know kind of I don't want to call it an outouse but to outsourcing outsourced billing collections. How do you think this aligns with industry trends that buyers or investors are actually seeking and looking for? As you know we do a lot of work preparing businesses for the market. H how do you think it aligns with the acquirer's needs and wants? Well, you know, I think that what's interesting is when you think about bringing a practice to market from your perspective, it very much is aligned with maximizing the value and the satisfaction of your client.
And so what are you trying to do? You're trying to help the client best position their company for maximum valuation in a successful transaction. I think what we see on our end in our role in that is that when a buyer looks at a practice that's got an outsourced RCM provider it creates some really interesting tangible financial and operational benefits and I'll give you just four that we think are really important. I think first that buyer knows that there's a greater reliability of the revenue and cash flow because of the consistency and the operational execution of an expert outsource team as opposed to a single company in-house billing group.
There's just more industry knowledge, experience, crossf functional sharing that happens to drive revenue and cash flow. So you've got a better financial picture. I think second accessing data and reporting for due diligence are going to be easier. We are just set up to provide data through client reporting and other mechanisms and we've structured that data in a way that's more market based as opposed to individual practice owner based. I think third is by virtue of having taken that step of going to an outsource provider and really professionalizing your revenue cycle through that outsourcing.
You've shown a commitment to the buyer as a practice owner that strong administration and operations are really important and it just gives comfort with the quality of your operation the business side of your operation not the clinical side and then lastly it provides flexibility to the acquirer so much as I as a revenue cycle manager don't want to admit this you know it's pretty seamless for an acquirer to come in and fire us if that were the right answer and capture the synergy into their own system.
It's a heck of a lot harder to terminate employees. You have real HR considerations as the buyer of a business where who knows who that billing department is, but if they're employees, the owner is going to care a lot more about them than they're going to care about an outsourced team. And I think we whether we're terminated or kept on with the combined company were set up to seamlessly continue to work with the revenue cycle management function of the new buyer. And so I think in all those ways probably a few others you just have a smoother transaction process, easier post-transaction integration and likely more buyer comfort with a premium valuation.
Do do you have any kind of a sense I know you know PTBS does work for you know startup physical therapy companies but at what point in a company's growth does it really make sense to try to transition from an insourced in-house to an outsourced RCM and what are some of the indicators that as a company you have reached this stage to start looking for an outsource option you know it's an Interesting question, Paul, because when we were doing due diligence on acquiring physical therapy billing services, it sort of gave us a perspective and that is that about half of the hundreds of practices that this company has ever served have been startups.
They've been great physical therapists who worked in a larger practice and ultimately want to set up their own practice somewhere between five and 15 years after they graduated. And so what we've learned is that really at any point in time outsourcing makes sense because of the ROI benefits we talked about and the lifestyle kind of qualitative benefits we mentioned and I know that sounds a little self-serving but having been at this as a company for almost 20 years it's really interesting to see how at each stage of a practice or group practice's life it can make sense and what I mean by that is you know when you're starting up so if you take it in three stages right startup's established in the groups.
As a startup, your billing partners are really experts in everything you need to do on the administrative and revenue side of your practice. So, they'll help you pick your EMR if you want that help. We try to play Switzerland a little bit on EMRs, but we're knowledgeable in virtually all of them. And so, we can offer advice. We can inquire. We have some strategic relationships with some of the softwares that help us really match the needs of the practice and the individual while they're going through trying to figure it out.
We can counsel on payer mix. We found one of the most important drivers of the actual profit of a practice is their payer mix. We certainly help with credentiing. We even help with getting things like your bank accounts structured correctly. You know, what tax ID you open up a given bank account under. It really matters, especially when it's collections and dealing with Medicare and things like that. You know, for established practices, it's always beneficial to outsource RCM for the reasons we've talked about. You know, there's really never a bad time to make more money faster and with less headaches.
And there's never a bad time to spend more time on providing great patient care and less on administration. I think interestingly for even the largest group practices, you know, the issue becomes not whether they have the wherewithal and the means to do their own in-house billing. It's whether that's what's important to the organization. And certainly some organizations do a great job with their in-house revenue cycle management, [snorts] but it's about the strategic priority of management. And it's about what are you building inhouse versus from a team.
In-house, you will always only have the data that comes from your operation. If you outsource, you will always have many employees with years or decades of experience, unique knowledge across the country, working together as a team for each client instead of a smaller team working on one client. And maybe you'll be able to leverage better scale with software vendors and payers for unique arrangements. You know, it's funny you say, well, I, you know, a given huge practice might be bigger than a small revenue cycle management company, but the minute that huge practice adds its business to the revenue cycle management company, automatically there's more scale.
So, at every level of scale, a company can benefit. Do do you find that again in growing companies that there are you know you can call them telltale signs or very specific inefficiencies that are being missed revenue opportunities that would point to a company to say hey you really ought to consider a revenue cycle management company. You know it's tricky to answer that question because every practices situation particularly on the smaller end is unique. You know what matters most is the payer mix, the state, the specialty that the practice is practicing or are they generalists amongst other things.
You know we truly believe that any practice can benefit at any time. So it's a bit tricky to boil down telltale signs but I'll tell you what we do is when we speak to a practice owner for the first time and they're thinking about oftentimes what'll happen is a practice owner is thinking about or shopping but not necessarily committed to outsourcing. So that very first conversation is less about telltale signs and more about asking some questions to say what specialty, what geography, how many visits do you do per month of what kinds do you have PTAs, who are your main insurance payers?
And if you just simply take that and marry it up against our data of a variety of different practices in similar situations, we can usually estimate what their collections would be. And we'll play a little bit of a game and we'll say, "What are your current collections? Are they X?" But X will always inevitably be between 10 and 20% higher than what they currently are getting because we know how to pull those levers to help them get to that next level. And that's how you get to that 40% number over three years is you stack it up over a couple of years.
Then we ask about, you know, the more basic things. What are your current challenges? What are your future plans? Are you calling and verifying patient benefits or the need for authorizations depending upon the payer? Some payers in some states have different needs for authorizations. You know, how do you handle patient collections? Huge amounts of money, Paul, are left on the table. I'm sure you've seen this with your clients. It's really uncomfortable to do patient collections, right? I'm seeing Mrs. Smith. She's got a knee problem. What I really care about is helping her get better and get back to comfort and quality of life.
I don't really want to call her three times and tell her that I can't see her anymore if she doesn't pay. That's our job. H how do you tackle the, you know, as you said that the, you know, kind of out of sight, out of mind? I can remember back we had a company back in New Jersey many years ago and I was sitting in church and the woman behind me tapped me on and she said, "Um, you do you do you know that you guys called me on Friday asking me to pay, you know, out of my pocket for the physical therapy services that were covered by insurance?" h how do you find that you're able to handle, you know, the patient side better than they walk in and I say as the front desk, by the way, you know, we're going to collect your $10 copay on the way out or that that seems to be a challenge for many practices.
You know, it's it there's no panacea. And your story probably has hit literally every provider at some stage of their career, right? Oops, I forgot, you know, my ad my front desk person forgot to collect the co-ay. Oops. You know, they the deductible wound up being under underutilized, etc. You know that I think with regard to patients is probably the single one of the single most important connectivity points between the billing team the outsource billing team and the front desk and the provider owner as a strategy.
How important is the culture of the practice? You know how important is it to be friendly versus firm? How do you train? There's more likely to be turnover in the front desk staff than there is to be turnover in the RCM company. And and so how do you train that new person coming on board to the practices and procedures? How do you train them and script them to be able to deal with the relatively more challenging patients that come through the door? How do you want to treat certain patients?
You know, there are there are insurance requirements for billing, but then there are ways you communicate. And depending upon that dialogue between us and one of our clients, we might treat different patients somewhat differently in tone even though we wouldn't treat them differently in process. Sure. Do you tag specific individuals to specific practices or is it always a large team working on all the practices? How do you determine you know who works on what and who communicates with the owner and the front desk and that sort of thing?
Yeah, it's a it's a it's a really important question because it comes down to the service, right? This is a service business and we're playing for the success and satisfaction of our client. There are a number of factors. The most important factors so first of all the way we're structured and I think a number of people a number of RCMs in the industry are structured this way is we have small we have regions and teams and that each client would have a point person who's their point of contact their main relationship person who is on the billing team and is an active biller so it's not a sales relationship it's substance relationship but then that person fulfills one of the functions that the team fills the entirety of the revenue cycle and then there are specialists in benefits veric verification credentiing etc.
There's some specialties around performance improvement reporting etc and you know we align based on states again is one of the most important factors and then practice management system. So while every one of our team members is cross-trained in all the softwares we support and we support about eight of them directly some love one more than the other and so you know at the end of the day we structure the teams around the practices based on their states and their EMRs and then the dynamics within them.
Yeah off video I could I bet I could name those eight from top to bottom but we'll let let's see how good I am there. We won't do that now for sure. You know, many companies in kind of that range as well as smaller companies, you know, they want to grow. They they need to grow. They want to add new clinics. They want to do small acquisitions. They want to be the next big company to be acquired potentially or merge or partner. How do you see that a revenue cycle management tool can support adding new locations while again minimizing that administrative burden?
Yeah. Well, you know, it's interesting. I think that growth always comes from a variety of ways, right? So, there's obviously things we don't do like patient acquisition. And then and there's things we do like getting more revenue turned into cash from a given set of visits and encounters. And so turning that revenue into cash from a given set of visits and counters fuels the capital to invest in things like marketing and staff hiring and new locations. And so I think of our role in the partnership with our clinics of providing a better profit margin that can be reinvested in driving growth.
As part of the answer to the question and the other part of the answer to the question is the fewer things that the practice has to think about to drive growth the better. So let the practice think about if I'm a practice owner I want to be thinking about how do I acquire patients? What am I doing with my marketing? What am I doing with my referral development? I want to be thinking about how am I training and acquiring more staff and better quality staff and teaching them how to provide better service.
How am I layering in PTAs were appropriate to make my practice more robust and more capable? How am I thinking about adding specialties if I'm a general practice or if I'm one specialty and I might have a patient base for another? All of those things are where a 100% of my brain should be. I shouldn't be sitting around thinking about, oh my gosh, my denials rate is 88% and it was 89% last or 11% last month and 12% this month. What am I going to do to reduce denials?
My DSO, my day sales outstanding just went to 35 days. How do I get it back to 30 or 20 or 21? Those are the things that we can do and you can do that with one call and you can grow infinitely. So, one of the fun things about RCM structure is no matter how big a client grows, we're always going to be there for them. And we'll add the next payroll staff member if we need to fulfill their service, but it'll be seamless to our client.
And so, focus your energy in growing on the things that you really can add value to and outsource the things that we can add most value to. Yeah. Really interesting. We just had a client the other day who was having some issues with communication and he said, "We're done. We're all going to be here. If you don't live in the Dallas area, you're moving to the Dallas area. We're going to have everybody in our admin office in one place all working together and he's going to carry that out." So, it's so interesting.
And I did not I do remember Dylan telling me that at the private practice section meeting, but that has to be unique. So share a little bit a story if you could. You know revenue cycle management as you describe it should support topline as well as bottom line growth. 40% average is off the charts. I'd love to hear a story of a client and how you drove that top line and bottom line. How many locations they had. Kind of a little mini success story. Yeah, sure.
I think just as I think about one or two that come to mind you know we partnered with a practice in Michigan this year and interestingly nothing not even near our office just happened to be in the state of Michigan we clients in all 50 states at this point and they came to us in transition from their in-house billing team handful of locations three or four providers per location. So call it 15 to 20 providers. And what and what we found was really three important things.
One they were not correctly billing for their PTAs. And so they weren't getting reimbursed correctly for their PTAs and they weren't catching that when they were having denied claims around it, they weren't resubmitted correctly and ultimately they were forgetting about how to follow up on it. Number two, they had missed some opportunities with some local insurance payers that had superior rates that they could leverage. And number three, they were only sending out one patient statement, not the three that you're supposed to send out for overdue balances in order to clean up collections.
And so we we didn't catch all of that in our initial triage conversation. We caught one or two of those things. But we took over the account and very quickly we were able to bring revenue up probably within the first year something closer to 15 to 20% growth in the first year just on the same clinic footprint just on those three issues. So get an incremental prov payer contract. Get your patient collections up by about was worth about five points of that growth and the PTA rebuilding was worth about 70% of that growth.
And so with those three things armed to get that 20% 15 to 20% growth and then what that armed them with they wanted to grow was they were able to go out and buy and acquire not acquire I'm sorry hire new providers. And so they added a couple providers to each clinic and then they opened two more clinics and net they wound up growing about 50% over the course of three to four years. Wow. And it's just a beautiful but it's because it's sort of snowballs.
If you have more revenue, you have more profit for a given amount of expense. You have the option to put that profit in your pocket or to invest it in your growth. You may have tackled this in your description of that client. But all physical therapy business owners are looking for is how do we incR increase that per visit dollar amount? You know, we're at 85. We need to get to 92 to be in our market. How do you look to improve on a per visit basis?
What are some of the things that you guys do from an RCM in order to get that per visit higher? Yeah, it's interesting. I mean, there there's the there's the headline amount, right? There's the gross value of the claim, which has to do with the contracted rate, and then there's the collected amount, which is what really matters. It's how much of that [clears throat] per visit amount winds up in their pocket or on their P&L. And I think what we've generally done while each practice situation is a bit unique is depending upon the state and depending upon the payer mix and who the payers are we'll review the pair mix and identify opportunities to change that pair mix which could drive up a given per visit amount.
Occasionally we will support migrations in or out of network in a given market in a given payer situation. We will often be able to identify additional treatments that they may not be aware that they're able to bill certain insuranceances for. I'd have to look to the team that runs the day-to-day operations to give me more specificity around that. But I know that there are situations where we've identified within a plan treatments that were being provided that weren't being built for. Yeah. And then I mentioned earlier I think on the Michigan situation optimizing how PTAs are coded and build varies greatly.
You know Medicare just gave us a little bit of relief, right? But there's very different ways that that's handled. And then lastly, it's funny that patient collection process really matters, right? You know, if I bill insurance, you know, $90 or $100 for a visit and I expect that five or 10% of that's supposed to be the patient, but I never go get it, well, that brings down my average by five or 10. Sure. Absolutely. Do do you see that revenue cycle management provides unique benchmarks or kind of data points that an in-house team typically wouldn't look at just based on the robustness of your team and potentially other teams as well?
And how do you think this can help business owners then make strategic decisions on growth and potentially attracting potential buyers? Yeah, you know, I would imagine I know what we do. And I would think that specialty focused players in RCM with deep expertise in a particular sector like physical therapy could provide much better benchmark data and insights versus an in-house team who can only benchmark their own practice as opposed to benchmarking the portfolio of practices. So even if I just package your data better than your in-house team does because their expertise isn't reporting, their expertise is collecting, that's one step.
But if the second step is I could put side by side in your state or in your market or with your payers, here's how those people perform and what are the differences. One of the things we haven't done yet is we were thinking about is perhaps some kind of council of some of our longest tenure clients with whom we have the best relationships to create some kind of shared best practices and knowledge amongst different practices. Sure. Which again you can't do if you're inhouse and now APA does a great job of that.
Right. So maybe there isn't a role for us in that but it's something we're thinking about. I think of the ability because we're national in scope and because we're across all specialties and virtually every major EMR system, you know, we have the ability to give comparative data on virtually any situation. And and so imagine I get a phone call from a geriatric specialty practice in Salt Lake City and you want to know what's your reimburseal rate per unit or visit on Optimum is and how it compares to other markets.
We'll have that. You know, that may or may not be available to the in-house billing team. There's some publicly available information, but it's still kind of spar sparse and far between. We'll have how many visits or units per visit and average patient experiences, trends in patient flow, etc. In your market. And so I think all of those things, you know, if packaged and structured correctly should be incredibly important for making informed business decisions like how well is your given provider base performing and where do you need to do corrective action, where can your locations handle additional providers, where should you be putting additional locations based on opportunity in the market.
Those are all things that I think feed into valuation and attractiveness to a prospective acquirer of a of a of a practice, much less feed into the pockets of of the profits of the practice owners. Yeah, certainly having that ability to aggregate data and then slice it and then feed it to your clients to show them where they may be more efficient, less efficient than others. I also think Lou that this is an industry that gives and gives and gives to each other. And so you have, you know, the peer-to-peer that has been in existence for many years.
The private practice section conference that brings, you know, sometimes thousands of business owners and the amount of sharing of information back and forth, I think is very unique as compared to many other industries. So I think you're you've jumped into an industry that I believe you'll be able to take multiple clients, put them together on a Zoom and talk about things they may be doing even outside. You know, right now as you know staffing is just such an enormous challenge to all physical therapies both small, medium and large.
So I think you'll find that you know this is an industry that shares and certainly your data is data that can really connect someone to improvements that they could make. Great. I look forward to it. Lou, this has been really valuable and I really want to thank you for taking the time today and responding so knowledgeably about so many of the different topics we discussed today. So thank you for sharing with us. Thank you very much, Paul. It's been a real pleasure. I'm glad I was able to help some of the clients out there.
And for all of you out there who have listened in today, if you have any questions on the conversation that I have with Lou today or any other topics that you'd like to discuss, just click below and let's talk. Have a great day and a great weekend.
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