The Physical Therapy Labor Productivity Crisis

I’m going to try to summarize in-network physical therapy’s financial crunch in one sentence:

Fee-for-service reimbursements based on timed CPT codes are leading to lower physical therapy margins because they stagnate labor productivity in a healthcare sector with budget neutrality.

Let me unpack this.

The US Bureau of Labor Statistics defines Labor Productivity as: “a measure of economic performance that compares the amount of output with the amount of labor used to produce that output.” As a rule, prices should rise in sectors with minimal labor productivity growth: labor output is unchanged, but inflation leads to increased payroll and overhead expenses. Prices must go up for salaries and margins to remain stable.

Slow growth in labor productivity in education explains why we spend a growing portion of our paychecks on college. In contrast, a jump in manufacturing labor productivity (especially overseas) explains why the costs of electronics and other material goods on Amazon have dropped significantly.

Healthcare bucks this rule because of Medicare budget neutrality requirements. Each year, as new expensive biologics and medical devices come to market, the Center for Medicare services actually lowers reimbursements across the board to maintain budget neutrality.

This isn’t all bad news. A $50k biologic/device may avoid $500k in long term medical costs. Physicians can get higher reimbursements from new CPT codes associated with these technologies.

Rehab professionals like physical therapists, by-and-large, are stuck with time-based reimbursement codes. There are no opportunities for labor productivity increases. Maintaining revenue with dropping reimbursements requires therapists to work more hours. This is driving physical therapists into a state of burnout. (Here’s my one plug for Tapt Health)

I’ll discuss two reimbursement pathways that would allow rehab professionals to break out of this financial crunch in my next post.