American College of Medical Practice Executives Case Study

Starting an In-house Physical Therapy Program in an Orthopedic Practice

This paper is being submitted in partial fulfillment of the requirements for election to Fellow.

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Starting an In-house Physical Therapy Program in an Orthopedic Practice

Statement of the Problem

The practice has a physician-owned clinic building which includes around 3,700

square feet of space that was leased to an independent physical therapy group at a

low rental rate which included many additional amenities such as telephone services,

utilities, cleaning, and security. Although the physician owners made very little

from this arrangement for many years, the physicians had been happy with this

agreement as they believed the patients were receiving good therapy services and

did not have to be concerned with Stark laws since the physicians did not have any

ownership interest in the physical therapy (PT) group. The Chief Executive Officer

(CEO) was new to the group and recommended to the physicians at a Strategic

Planning Meeting that they either bring PT services in-house and create an internal

PT Department or increase the rent with the additional services to a rate closer to fair

market value. The first year, after much discussion, it was decided to increase the

rent slightly. The following year at the next annual Strategic Planning Meeting due

to some of the physicians’ complaints about staff turn over in the PT group and the

upcoming PT group’s lease renewal, the CEO put together a pro-forma to show the

financial benefit of bringing PT services in-house as well as a list of the potential

improvements that could be made for patient PT care. The physicians had become

dissatisfied with training physical therapists on what they believed to be best

practices for their patients since there was constant turnover in the PT Group and

they had no input on hiring or termination of the therapists. This discussion was

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very difficult for many of the physicians because the practice was located in a smaller

community of around 100,000 people and most of the physicians had some sort of

relationship with the owner of the PT group. The CEO and physicians knew that the

decision could not be made lightly since it would affect relationships with the owner

and family, the community, the practice, and most importantly the patients.

Alternative Decisions

The alternative decisions considered by the CEO and the Physicians were: (1) do

nothing and renew the lease for the space with the current PT group, (2) renew the

lease at fair market value, (3) since the lease with the PT group was ending, choose

not to renew the lease and hire an outside rehabilitation (rehab) company to start and

manage the in-house PT program for the practice, or (4) have the CEO set up an in-

house PT program.

The benefits of both the first and second options considered, do nothing and

renew the lease for the space with the current PT Group or renew the lease at fair

market value, were that no additional time would be necessary to start up an in-

house physical therapy program, there would not be any added costs to purchase

equipment and hire staff, and the CEO would not have to have the difficult

discussion with the PT owner on non-renewal of the space. Also the physicians

would not have to deal with a harmed relationship with the PT owner, family

members, and other groups involved such as neighbors, church members. The

practice would not have to be concerned with the perceptions of other PT groups in

town since many Physical Therapists are against physician-owned physical therapy

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services (POPTS). The CEO and physicians would not have to notify referring

physicians or be concerned with negative perceptions on POPTS. Another plus

would be that the practice would not have to worry about the in-office ancillary

exception being eliminated and having invested money and time in developing a

program that may not be legal in the future. The downsides of these two alternatives

would be that the physicians would have no input on physical therapists hired or

terminated and the physical therapy care the group’s patients receive would not be

in the physicians’ control. The physicians felt strongly that the coordinated care

between them and the therapists could improve the patients’ outcome if a program

was developed jointly. In addition, the practice would lose income by continuing to

lease the space rather than starting an in-house PT program even if the rent was

increased to fair market value.

The third option discussed was to not renew the lease with the PT group and hire

an outside rehabilitation (rehab) company to start and manage the in-house PT

program for the practice. The CEO was for this option because the outside rehab

company would fully manage the PT services. The rehab company would also have

the majority of the risk such as purchasing the equipment, hiring the staff,

purchasing supplies, and management of the program. In addition, the rehab

company would be responsible for initial and ongoing training of the billing staff.

The rehab company are considered experts in PT with training, hiring, billing, and

set up. The CEO knew no one in the practice was as knowledgeable as a professional

PT management company. The rehab company would provide credentialing and

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billing assistance as well as training and set up. Reporting and feedback for patient

satisfaction as well as clinical outcomes would also be done by the rehab company.

In addition, the rehab company would handle compliance training and auditing.

Using a rehab company would get around the resistance of therapists working for

physicians since the rehab company would be the employer of the staff and not the

physician group directly, yet giving the physicians and CEO the final say regarding

staffing. The last positive was that the rehab company was willing to add a clause to

the contract to end or change the agreement if regulatory law changed for PT services

and the practice could not legally have POPTS, meaning that the rehab company

would be taking all the risk of purchasing equipment and start-up costs.

The negatives of this choice would be that the practice would still be responsible to

provide the space, cleaning, utilities, security, maintenance, phones, credentialing

and billing services. The practice would also have to split the profits with the rehab

company. With the PT income generated the group would be reimbursed their

expenses first, then the rehab company’s costs would be paid, and then lastly the net

revenue would be split between the practice and the rehab company 50/50.

A real concern for the CEO was that the rehab company required a five-year

agreement and would not negotiate this requirement. Another downside was that

the CEO would have to have the difficult discussion with the PT owner on non-

renewal of the space and the physicians would have to deal with the harmed

relationship with the owner and negative perceptions of PT groups as well as

physicians in town as stated with options 1 and 2 previously.

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The last choice considered was to have the CEO set up an in-house PT program.

The most appealing advantage for this option was that the income generated from

this in-house program would not have to be shared with an outside company. There

would not be any issues with outsiders having control over the PT program and

there would not be a third-party in between the staff and CEO or the physicians.

The disadvantages would be that this process would take time and commitment

from the CEO and Operations Manager. Developing a PT program and purchasing

equipment would also require funding by the practice. Other negatives were that no

one within the practice has any expert knowledge of a PT program. The CEO had a

basic knowledge of running a PT program and minimal knowledge of the billing and

compliance aspects, especially requirements for billing incident-to the physician.

There would need to be a physician leader assisting with the designing and internal

PT program since the CEO was not clinically trained. The CEO would need to have

the difficult discussion with the PT owner on non-renewal of the space and the

physicians would have to deal with a harmed relationship with the PT owner and

other groups that may be upset with this decision. The physician group would have

to be concerned with the negative perceptions of other PT groups and the CEO and

physicians would need to notify referring physicians who may also have negative

opinions on POPTS. The practice would have to worry about the risk of the in-office

ancillary exception being eliminated after investing money and time in developing a

program that may not be legal in the future.

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Analysis and Decision

The CEO spoke with a rehab management company to determine what services

they could offer in starting up and running a PT program for the practice as well as

the costs involved. The CEO then did a pro-forma analysis based on discussions

with the rehab company and other orthopedic group administrators who had an in-

house PT program and others that were using a rehab management company. The

CEO then listed out the advantages and disadvantages of all options. At the next

Strategic Planning Meeting the CEO discussed with the physician partners all the

options, the pros and cons as well as the financial analyses. At the Strategic Planning

Meeting the CEO and physician partners discussed all options and considered the

following:

1. The financial impact of each option.

2. The time involved to implement each solution.

3. The emotional distress that would be caused by non-renewal of the current

lease with the PT owner and the impact of that relationship.

4. The potential consequences of negative perceptions from referring

physicians and community PT groups with the disapproval by some for

POPTS.

5. The risks of issues with compliance, billing, and the removal of the in office

ancillary exception.

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6. In the past the physicians had a bad experience with a management

company with their surgery center and the partners had reservations about

using a management company again.

Although the CEO would have preferred to use a rehab management company,

the physician partners felt most comfortable giving the best possible patient care for

PT services by choosing to bring PT in-house under the CEO’s direction. It was

decided that a PT Director would be hired to assist the CEO in starting up and

managing the program and first option would be given to the owner of the PT group.

This also appeared to be the best solution from a financial perspective.

Implementation

The CEO requested a meeting with the owner of the PT group leasing space and

explained the group’s decision that the lease would not be renewed. The owner was

given the option of taking the position of PT Director with the physician group but

the owner declined as it was a preference to be an independent owner and not

employed by the physicians. Therefore, verbal and written notice was given to the

owner of the PT group with four months to locate new space. The CEO then ran an

advertisement for a PT Director and started the interview process with the assistance

of one of the physician partners who volunteered to be the physician leader of the

project. The top two candidates chosen by the CEO and the physician leader were

interviewed by the physician partners and a decision was made to extend an offer.

The offer was accepted and it was agreed that the new PT Director would work part-

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time hours in the beginning to help get the program developed and implemented.

The CEO and PT Director discussed and determined the following items for start-up:

1. The date of start-up was selected a month after the PT group’s lease ended.

2. The needs for remodeling the space was decided and completed once the

space was empty.

3. The number of staff needed for start-up was evaluated and agreed upon.

4. Internal job announcements were posted in the office and advertisements

were run in the newspaper as well as online.

5. Interviews were conducted and positions were filled for a Receptionist, one

PT Aide, two Athletic Trainers, and two additional Physical Therapists.

6. Credentialing with insurance companies was done for the Physical

Therapists hired.

7. The CEO created a PT start-up checklist identifying items to be addressed,

the responsible person and the date due (Exhibit A).

8. Equipment, supplies, information technology items, and furniture needs

were reviewed and quotes were obtained. Necessary items were purchased

with larger equipment planned for delivery prior to the start-up date but

after the PT group was gone to allow for storage.

9. Essential forms were created for patient intake, billing contracts and

Medicare caps. The existing PT prescription form was modified.

10. Medical records were addressed and it was decided by the CEO and PT

Director that an electronic medical record for PT was the best option even

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though the physicians were not on an electronic record yet. The PT

Director reviewed different software options and made a decision based on

ease of implementation, use and cost.

11. Patient education software was reviewed and purchased.

12. Protocols for scheduling were developed by the PT Director and new

therapists hired with the assistance of the physicians.

13. Job descriptions (see Exhibit B for example of Physical Therapist) and

orientation training checklists (see Exhibit C for example of PT Aide) were

created by the Operations Manager, CEO and the PT Director.

14. Marketing materials were created by the Operations Manager, the CEO and

the PT Director. Letters were sent to referring and primary care physicians

as well as local therapy groups explaining the decision to provide in-house

therapy services (Exhibit D).

15. Protocols were developed for bringing two of the therapist’s current PT

clients into the practices since they were local.

16. Billing processes were created and the current billing staff was trained on

PT billing.

17. Schedules were set-up in the current practice management system

including dual post-operative patient appointments with the physician and

the therapist so the physicians could see the patient in the therapy setting

after surgery.

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The CEO located a colleague that was an Administrator for an orthopedic group

as well as a physical therapist who was knowledgeable in an internal PT program in

an orthopedic practice and gave excellent advice and reference materials. Even with

this helpful advice, due to the struggles in the department, it took almost a year to

break even and see the financial rewards on this option once implemented. After

two years, the revenue from this solution is on track based on the original pro-forma.

Lessons Learned and Summary

The patient satisfaction surveys for the PT Department showed that the patients

were very happy with the convenience and care received from the in-house PT

program with 99% of patients stating they would refer friends or family to the PT

program. The physicians were extremely pleased with the coordination of patient

care between the doctors and the therapists. The post operative visits in the PT

department allow the physicians to see the patients’ progress after surgery and

allows for direct communication between the physician, therapist and the patient.

All parties involved were very happy with this aspect of the program.

The PT Director struggled with management of the staff which caused a lot of

dysfunction in the PT Department. The CEO learned that a PT Director with prior

experience managing staff would have been a better choice. The constant difficulties

with interpersonal relationships took a significant amount of time for the CEO to

mentor and work with the Director as well as time for the Operations Manager to

improve employee relations in this department. An excellent physical therapist does

not necessarily make a good leader. Leadership skills are essential for a PT Director.

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The billing and compliance for physical therapy is very complex and even though

the CEO arranged for training for the staff, it would have been beneficial to use a

rehab management company to get the PT program implemented and going on the

right path.

Recommendations for Other Managers

If the manager is not familiar with physical therapy services and billing

requirements then it is recommended to seriously consider using a rehab

management company and negotiate a lower contract term (2-3 years) to get the

program established.

Although the practice had an audit done after six months to review therapist

documentation and billing compliance, it would be recommended to work with a

company experienced in PT billing and documentation from the start to be sure the

practice is in compliance rather than wait for six months.

Hiring the right Director or Manager for the program is extremely important. The

physicians wanted to hire for the therapist skill set but this example showed that

knowledge and experience in managing staff with good leadership skills is also a

requirement.

Even with some of the start up struggles bringing physical therapy services in-

house was well worth the effort with extremely satisfied patients and providers, and

most importantly, improved quality patient care. The financial benefits are also

helpful as reimbursement for independent physician groups continue to decline.

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Exhibit A Physical Therapy Start-up Checklist

Page 1 of 2

Responsible Date DateItem Person Due Completed Notes

Verify malpractice coverage for PT staffMedical Records (charts or electronic)Forms needed - PT Intake FormChange locks, securityDevelop incentive programPatient education documentsProtocols for scheduling

Hire Physical Therapists (2)Hire PT Aide (1)Hire ATCs (2-3)Hire Receptionist (1)Transcription staffDecide on billing staffJob descriptions on above staffTraining checklists

Telephone linesFax lineSetup Dictation for 3 TherapistsComputersLaptopsPrintersWireless NetworkCredit Card MachineInterface between EMR and PM SystemsFax machineCopy machine

Medicare NumberMedicaid NumberInsurance Contracting (see list)Enter numbers/setup Practice Management Software

PT Equipment NeedsPT DME NeedsOffice Equipment/Supply NeedsOffice SuppliesNametagsPT ScriptWaiting room chairsArtworkLaundry (towels, t-shirts, shorts, other linen)Mirrors

CREDENTIALING

MATERIALS MANAGEMENT

Physical Therapy Checklist

ADMINISTRATION

HR

IT

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Exhibit A Physical Therapy Start-up Checklist

Page 2 of 2

Responsible Date DateItem Person Due Completed Notes

Coffee suppliesRugs and other decorative itemsTowel/pillow racksBlinds

Business CardsAppointment CardsBusiness Stationary / EnvelopesUpdate Intellisound (onhold music)Community MailingYellow PagesUpdate MBJ BrochuresUpdate WebsiteSignage/Stenciling (outdoor, main entry, arrows)Radio Advertising on current Healthbeat promotionLogoPatient survey

Protocol for bringing PTs' current clients overBilling process/training (Medicare caps, modifiers, same day as phys rules, incident to billing)Schedules in PM System

MISCELLANEOUS

MARKETING

MATERIALS MANAGEMENT, continued

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Exhibit B Physical Therapist Job Description

Page 1 of 3

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Exhibit B Physical Therapist Job Description

Page 2 of 3

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Exhibit B Physical Therapist Job Description

Page 3 of 3

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Exhibit C Physical Therapy Department Orientation Checklist

Page 1 of 2

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Exhibit C Physical Therapy Department Orientation Checklist

Page 2 of 2

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Exhibit D Letter to Physical Therapists in the Community

Date Dear Colleague: The physicians of ______________ recognize that Physical Therapists are an integral part of treatment for patients with musculoskeletal diseases and conditions. We know that physical therapy enhances the recovery and rehabilitation of our patients through focused training in exercise thereby improving patients’ outcomes. We strongly support the team approach to delivery of health care and as of _______ XX, 20XX have decided to add physical therapy to our in-office ancillary services as an additional option for patients. Attached is our revised PT/OT Order sheet and we will continue to list your facility as a therapy option for our patients as well as other alternatives in the community. Patients will be given the choice of who they want to see for therapy just as we have done in the past. If you refer a patient to one of our providers, your patient will be referred back to you for therapy services. We will continue to work together with you to make sure our patients have access to quality and comprehensive care at a facility of their choice. If you have any questions feel free to contact us or our CEO, ______________, at XXX-XXX-XXXX. Respectfully yours, Physician Names