Payer Mix and the Value of Your PT Practice

Payer mix is the share of your visits and collections that comes from each type of payer. It affects how much you collect per visit, how stable your revenue is, and how easy the practice is to transfer.

Buyers look at it early. A practice with strong collections per visit and stable contracts is easier to underwrite. A practice that depends on one weak contract is not.

The main payer categories

Most PT practices see some mix of these:

• Commercial insurance. Rates vary widely by contract and market. Some commercial contracts pay well. Others pay less than Medicare.
• Medicare and Medicare Advantage. Rates are set or heavily influenced by the government fee schedule. They tend to be predictable but are subject to annual changes.
• Medicaid. Usually lower rates. Some practices limit this volume for that reason.
• Workers compensation. Often pays well in many states. It can come with more paperwork, authorization steps and slower payment.
• Personal injury and auto. Payment can be delayed until a case settles. Buyers look closely at these receivables.
• Cash pay. No insurance billing. Rates and collections are in your control, but volume can be more sensitive to the local market.

No single mix is right. What matters is how each payer performs for your clinic, and how dependent you are on any one of them.

Collections per visit is the number to know

Buyers do not judge payers by their reputation. They judge them by your actual results.

Collections per visit is total cash collected divided by total visits for the same period. Track it overall and by payer.

Say a clinic had 8,000 visits last year and collected $860,000. Collections per visit is $107.50. If commercial visits averaged $115 and a large Medicaid managed care plan averaged $70, the buyer will want to know the share of each.

Use collections, not billed charges. Billed charges are what you asked for. Collections are what you received. Buyers only care about the second number.

How payer mix moves value

Payer mix affects value through a few channels.

Margin. Higher collections per visit, with the same staff cost, means more EBITDA. More EBITDA means a higher price.

Concentration. If one payer makes up a large share of collections, a rate cut or contract termination could hurt badly. Buyers treat this like referral concentration.

Collection speed. Payers that pay slowly tie up cash. Large, aging receivables raise questions in diligence.

Trend. A mix shifting toward lower-paying contracts is a warning sign. A mix shifting toward better-paying sources supports a stronger multiple.

Contract assignability in an asset sale

This topic surprises many owners. In an asset sale, the buyer purchases the clinic's assets. Your payer contracts are held by your entity, and they do not automatically move to the buyer.

Some contracts allow assignment with notice. Some require the payer's consent. Some cannot be assigned at all, so the buyer must credential and contract on their own. Medicare and Medicaid enrollment have their own rules for a change of ownership.

This matters for value and timing. If key contracts take months to move or re-credential, the buyer may face a gap in billing. They may adjust price, delay closing or add conditions to protect themselves.

What to do about it

Gather every payer contract you hold. Keep them in one place with any amendments. Note the termination and assignment terms you can find.

Then have your transaction attorney review them. Assignment language, consent rules and Medicare change of ownership requirements are legal questions. They need a qualified answer for your specific contracts. This is not something to guess at.

Improving your payer mix before a sale

You have more control than you might think, especially with 12 to 36 months of lead time.

• Review collections per visit by payer every quarter
• Renegotiate contracts that pay well below your average, where you have leverage
• Consider limiting new patients from your lowest-paying plans, if your market allows
• Tighten front-desk eligibility checks and billing follow-up to raise actual collections
• Build cash-pay services where they fit, such as wellness or performance programs

Changes take time to show up in the numbers. Buyers want to see at least several months of results, ideally a full year.

Your next step

Pull a report of visits and collections by payer for the last twelve months. Calculate collections per visit for each one. Then put every payer contract in a single folder for your attorney to review. Those two steps answer most of what a buyer will ask about payer mix.