Carving Out a Niche
How to begin a specialized private practice in aquatic therapy.
Do you dream of owning a private practice? New clinicians often dream of going into private practice with a vision of a large office space, fancy equipment, and lots of high technology. This type of office demands a full staff-an office manager, administrative assistant, and many therapists, physical therapy assistants, and aides. The price tag of starting this kind of private practice as well as the overhead in running it can be astronomical. In order to produce the revenues that result in reasonable profit margins, this model necessitates managed care contracts, high volume, and, in some instances, a lower level of quality care.
In the 1990s, when managed care took over our health care system, many practices downsized, which meant leasing a smaller space or sharing a space, being solo practitioners, and becoming their own administrators. Many therapists have been successful in this alternative model. The key to success in a downsized world is to have a niche practice, meaning performance of services that are different from those of most practices and for which there is a great demand.
There are many different kinds of niche practices, such as manual therapy, women’s health, performing arts, orthotic fabrication, industrial consultation, and aquatic therapy. In this practice model, the structure of rent, salaries, management, fee schedule, and payor mix must be well thought out and based on developing operating ratios to increase profit. I will discuss a niche practice in aquatic physical therapy, but the logistics remain the same for other types of niche practices.
Location, Location, Location
You will need to clearly define your facility needs and your resources. The facility needs of an aquatic physical therapy practice are unique. Unless you are building your own pool or putting a small pool into an existing outpatient practice, you will need to rent a space with a pool. Ideally, having a therapeutic pool (92°-94°) with a ramp into the pool, benches, grab bars, access to deep and shallow levels at all times (3-7 feet), nonskid decks, and locker rooms is the best case scenario. You need to have a multipurpose space to perform your integrated land/pool program. This space may be equipped with Swiss balls, therapeutic exercise equipment, cardiovascular equipment, and seating for seminars and classes. An office space for consultations, initial evaluations, and manual treatment is also needed. Ideally, that space would include a telephone, fax machine, copier, locked file cabinets, refrigerator and microwave, and lockers for staff. Storage for your resale equipment and supplies and water therapy equipment is also needed. Patients need to be able to access the facility from 6 am to 8 pm, 6-7 days per week. Accessibility in the building is a necessity. That includes parking, showers, locker rooms, toilets, and pool via a ramp, a Hoya lift, or a variable depth mechanism.
Location is the most important issue. You need to position yourself in a community where people can afford your services, and in a facility that is clean and comfortable. The old real estate adage, “location, location, location,” could not be more true when it comes to your site selection.
Once you have defined your needs, exploring facilities will be your next challenge. Hotels, health clubs, fitness and wellness centers, and health centers are similar. They have varied bather loads and pool availability. You may find therapeutic pools in the newer facilities. Corporations are building on-site fitness centers including pools.
Retirement communities also sometimes have pools but may have an on-site physical therapist or a contract with an outside vendor. Mutually beneficial arrangements can be made to use their pools. These pools tend to be mostly shallow and accessible. Some therapists travel from pool to pool, in either public pools or private homes. This has many disadvantages such as travel time and lack of quality control. The advantage of renting an office space within another facility is that you can structure your overhead to be a variable expense and dependent upon your business volume.
After you select the site, a contract needs to be negotiated. The most important factor in negotiating is the person you are negotiating with. Is she clear? Who does she report to? What does she need to make it a win-win situation?
There are numerous ways to structure your lease or rent. In traditional office space, the most common is to have a square-foot lease. This lease creates a fixed rent, but also presents a risk for you. Most health clubs will not do this because your office space will most likely be very small and your patients will have access to the whole club and all of its facilities. Another very popular way to pay the club is on a per head basis. This amount is sometimes equal to the guest fee. It can also be variable and dependent on volume and member status. A rent structure based on a percentage of your accounts receivables is also an option. I do not recommend this simply because you will have to open up your books to the club’s management. Another way is to pay an hourly rental for the whole pool or part of the pool. This can get expensive. You do not usually require the whole pool, but rather a shared pool situation. A combination of a square-foot lease and a per-visit fee is also possible, but it can be costly unless the per-visit fee is low.
In all of these rent structures, it is advised to negotiate a ceiling cap on your rent. The cap is based on the fair market value of your office space plus a percentage of club usage. It allows you to increase your profit margin with higher volume while guaranteeing the club a fair, market value rent. You want to avoid a base cap. This will protect you in times that you face staffing shortages or a decline in number of visits. Additionally, there are many other variables to negotiate including laundry, telephone, fax, copying, cleaning, utilities, and staff memberships. Sometimes you can even be compensated for bringing the facility new members.
Contracts in these types of facilities are much more challenging than an independent lease. You are not in full control of the facility, and you are more vulnerable to the needs and whims of the management. However, the variable rent expense can be a determining factor in the success or failure of a new, small niche practice. The idea of paying as you go helps to assure success in this low-risk approach.
All facilities will require you to hold a current professional liability policy. Some will require you to put their names on your policy as an additional insured. You need to be certain that you have an occurrence-based policy, which will provide coverage for all claims that occurred during the time your insurance was in effect regardless of whether or not the policy is still in effect when a suit is brought against you. All of your associates must have their own professional liability policies. You can be named an additional insured on their policies if they are not employees.
A corporate or shared limit policy should be considered if you have a group of practitioners. Your practice does not have to be a corporation to take advantage of this type of policy. This policy comes with the options of sharing limits of liability or maintaining separate limits of liability. It also has additional options such as a business policy extension. This would provide coverage for an unowned auto, which is essential if you have associates driving from site to site.
Workers’ compensation is necessary if you have employees. An umbrella policy gives you extra coverage in addition to your personal homeowners, business, and professional liability policies. Some practice owners have a separate business policy with business interruption insurance. Lastly, your liability and insurance needs are affected by your choice of entity, whether you are a sole proprietor or a corporation. It is always wise to consult with a health care attorney and your accountant on these critical issues.
Staffing and salary structures are other variables that can greatly impact your risk and ultimately your bottom line. If you are developing a small niche practice, chances are your referral sources are referring directly to you. You have the reputation. It is difficult to sell your associates to your referral sources. You must hire the best clinicians that you can find, those who have skills that complement yours. Once you are established, do not be afraid to diversify. If you have an aquatic niche, hire strong manual therapists. If you are an orthopedic specialist, hire a neurospecialist who has aquatic therapy experience. Offer a unique setting, providing autonomy, flexibility, and independence in a wellness environment. Use the IRS 20 factor analysis to help you determine how to classify your associates, as either independent contractors or employees.
Many corporations, hospitals, and larger practices pay employees a benefit package and a salary, which some therapists need and want. It is one of your biggest risks in a small practice. If therapists are not generating income for you, they are still getting paid. An alternative is to pay on a per-visit basis. This increases your staff accountability and creates clear profit margins.
Conduct market research and pay your therapists at the top of the scale. Remember, they add value and diversification to your practice, performing visits that are above and beyond what you can perform with no risk. Their compensation must reflect that value. Additionally, your therapists do more administrative work than what is typically required of therapists in a traditional practice. You can add benefits for people who have longevity and perform above a part-time status. Other options include paying a percentage of receivables, or a salary with productivity standards to lower your risk. Giving people a stake in the business in the form of profit sharing or bonuses can also be a valuable part of compensation packages.
The management structure in a small niche practice will have a major impact on the quality of your practice, as well as on your risk and the bottom line. The costs of office managers, administrators, and front desk staff are high. In a small niche practice, even the salary for one person who does not generate income is difficult to justify. Furthermore, in a practice that may involve more than one location in health clubs or fitness centers, centralizing your administration is a challenge. I have found that owners and physical therapists can perform many of those functions. Outsourcing some of your management functions such as billing will help you as the owner to manage your time more effectively while not assuming too much risk. With technology, it is possible to have phones outcalled to your beeper, all staff on cell phones, and staff members helping with their own scheduling. The person who makes the initial contact with new patients needs to be a strong salesperson-one who knows the practice and the therapists. That person needs to tell potential patients about your strengths, the quality of your services, and what makes your practice different. The bottom line is that you must be cognizant of how you spend your time, maximize your billable hours, and always work toward generating business and income.
Setting your fee structure is an extremely important business decision. Market research in your geographic region will impact this decision, and you must know your per head cost of each visit. You can easily calculate this in two ways. The first is to take your total expenses in your profit and loss statement and divide it by the number of visits. The second way is to add your personnel cost, health club charge (if it is on a per-visit basis), and then add $5 for all other extraneous expenses. The number you generate with these two methods should be similar. This number can be used to determine your profit margin. For example, if the cost of a visit is $40, and your fee is $80, your profit is $40 or 50% of your fee. Your goal should be an average per visit profit of 20% to 50%. However, these decisions and calculations can be complicated by relevant costs. In this niche practice model, relevant costs can include staffing and salary structures, rent, and office availability. If you have a salaried employee and/or a fixed rent, you are forced to take managed care and reduced fee patients to cover those fixed overhead expenses. This will lower your profit margin.
In a niche practice with a low risk profile and low overhead structure, you should be able to attract a large percentage of self-pay and general insurance full fee patients. You can potentially avoid managed care, capitation, and reduced fee agreements. You can occasionally even negotiate workers’ compensation or Industrial Accident Board rates. This payor mix will raise your average fee per visit, thereby raising the overall profit margin in your practice. Diversify your income by consulting, selling therapeutic supplies, conducting seminars, and adding other disciplines such as massage.
In today’s economy and health care environment, it pays to give a lot of consideration to a different practice model. This niche practice model is one that assumes very low risk, low overhead, no managed care, and quality care. It ensures operating ratios that will increase your profit margins. It allows you to treat patients on a one-to-one basis for 40-60 minute treatments. Imagine what it would be like to work in a low stress environment doing what you love and what you do best, providing top quality care and, at the same time, increasing your income? The choice is yours.
Laura Diamond, MS, PT, is the owner and founder of Diamond Physical Therapy Associates, PC specializing in aquatic physical therapy and manual therapy. She can be reached via the Web at www.diamondphysicaltherapy.com.[This article was originally posted in the January 2002 issue of Rehab Management]