Inflation: How the Price of Eggs Is Impacting Physical Therapy
As prices continue to rise, manage your balance sheet to meet the challenge
By Suzanne Leach, DPT
Over the course of the last two years, it’s no secret Americans have seen the cost of goods steadily rise. Following the beginning of the COVID-19 pandemic, consumers first felt the cost at the pump gradually climb, followed by increases in groceries and other weekly purchases.
If you are someone who was building or renovating during 2020 or 2021, you likely know that not only were building materials difficult to obtain, but prices skyrocketed.
With no states or regions left untouched, this rising cost of goods was bound to eventually impact healthcare providers, even beyond the difficulty in obtaining standard COVID-19 PPE. For private practice owners, these costs can be especially difficult to navigate, without having the purchasing power of a larger corporation. The first step to managing your balance sheet and the challenges inflation presents is understanding this invisible line item so you minimize its impact.
MEASURING INFLATION
The consumer price index (CPI) is published by the Bureau of Labor and Statistics (BLS) each month and is commonly used to measure inflation in the United States. This index measures both the costs of goods and services offered to American consumers. Inflation rates, according to the BLS, are then calculated based off the CPI and reported as a monthly or yearly statistic. Major categories affecting the CPI include the cost of housing, transportation, education, food, and medical care.
Some increase in inflation is normal. In fact, the Federal Reserve sets the target rate for inflation in the United States each year. The Fed’s target rate usually falls around 2% and is impacted, in large part, by changes in set interest rates. For example, if inflation is higher than the targeted rate, the Fed, which is the central banking agency in the US, will increase interest rates accordingly. It is worth noting, from 2012 to 2016, yearly inflation rates stayed below 2%, causing Americans to grow accustomed to both low inflation and lower than normal interest rates.
So, while you may generally understand what inflation is, what causes it to ebb and flow, or as of late, consistently rise over time? Across the globe, inflation has steadily risen in a post-pandemic economy. Since the summer of 2020, inflation has steadily increased, with the largest month increase coming in June of 2022 at 9.1% and the yearly rate expected to fall somewhere around 8%.
ENERGY AND TRICKLEDOWN
One reason for rising costs is the simple cost of energy and the trickledown effect this creates for producing goods. Both gasoline and electricity have continued to increase over the last year, with the average cost per kilowatt rising around 16%. Additionally, construction costs have mirrored the CPI, hovering between 9% and 12%. But why? A recent article from Construction Dive, explains how a 14% increase in concrete costs has been due in part to droughts limiting transportation of major materials and a bottleneck of supply chain issues still lingering from Texas winter storms in 2021.1
Another major contributor to inflation is incomplete economic recovery from supply-chain issues related to the pandemic. While manufacturers and workers have returned to business as usual, pent-up demand for specific items can remain high. For example, if a consumer delayed purchasing an item, such as a car, during 2020 and 2021, this item still needs to be purchased. This creates a continued mismatch between supply and demand. For this reason, the impact of the pandemic, can likely be felt for 2-3 years after the initial supply chain issues resolve.
In short, the causes of inflation are complex and cannot be blamed on one single factor, but more of a “perfect storm” that we may continue to see hover for another year or two. However, while rising costs are never good for businesses, especially in physical therapy, where the ever-going battle to even maintain reimbursement rates is being forged, the news is not all doom and gloom.
IS THE END IN SIGHT?
While inflation is still high, there are signs the CPI likely peaked this past summer as month-to-month rates have begun to level. Supply chain issues that challenged clinic owners in 2020 and 2021 have begun to resolve, as basic items like gym equipment are becoming more readily available. Additionally, some building materials are beginning to decrease in price. For example, steel and lumber prices have been gradually falling and are expected to continue to decrease. This can be very positive for anyone looking to build or re-construct a current building into a new clinic space.
Additionally, the BLS projects the demand for physical therapists to continue to increase at a rate of 17% over the next 10 years, a rate much higher than other professions.2 Put simply: there is growing demand for the product we have, regardless of the state of the economy or inflation. So how do we continue to produce that product in a meaningful way, regardless of the rising cost of goods?
IF INFLATION ISN’T GOING AWAY, HOW DO WE COMBAT IT?
While inflation may be slowing, it is not expected to return to pre-pandemic levels of 2%-3% anytime soon and some increased prices in some categories are likely here to stay. As a private practice owner, it will be more important than ever to manage expenses. One strategy to help manage cost involves longer-term planning but can help you save big — shopping from motivated sellers.
By utilizing sale shopping, you can discover significant savings on equipment and even some building materials, such as paint and fixtures. For example, I’ve seen a durable medical equipment provider who offers hi-low treatment tables $500 off during the month of November and December. Additionally, gym equipment such as weights, cardio-machines, and accessories such as bands are often available from companies that offer significant sales at different points in the year.
Making a list of non-negotiable items for your clinic can help you prioritize which items are truly needed to add value to your services offered, versus items that are simply “a want” or won’t positively impact your patient’s or employee’s experience. Additionally, knowing your patient population and being realistic about what equipment is worth the extra cost and what is not can be crucial. If you are a therapist who spends a lot of time on manual therapy, the convenience of a hi-low table may certainly be worth the added cost. If a large percent of your target population are athletes, equipment like a squat-rack is likely worth the versatility and cost but may not be if most patients will not have a goal of returning to a gym setting.
You may have heard the rule “buy nice or buy twice.” This can be great advice but be aware of spending extra for brand name versus off-brand items with the same durability. Certain items in your clinic may not be ideal to cut corners and save, however, “shopping bargain” for some items can greatly reduce cost. As an example, an item like a kettlebell is a simple item, with not much variance between brands. However, if purchasing a size run of kettlebells between 10 and 45 pounds, prices recently found online ranged from $485 a set to $1,160. However, items like furniture that will break down with increased wear and tear, or a machine that offers a longer warranty, may be worth paying for the additional quality.
The number one thing to remember regarding cost savings is to shop around. Especially when dealing with building materials, asking for alternate materials can lead to huge savings. As steel and lumber prices are now falling, there may be benefits to seeking alternate resources. For example: if outfitting a front desk or break room space, choosing a countertop material that is more cost-effective, could lead to literally thousands of dollars in savings, but have little impact on the “feel” of your clinic space or impact on patient care.
The benefit of shopping around can also apply to contract work. Recently, when designing a new clinic space, the initial quote I received from a contractor was 1.5 times greater than the final bid we chose, after speaking to three contractors. Healthcare has long been known for not always being efficient; stopping this trend from applying to expenses is essential in battling inflation.
INFLATION AND YOUR TEAM
Finally, and maybe the biggest challenge for physical therapy practices, is the impact of inflation on team members. We work in an industry with relatively slim profit margins, and unlike other industries, most of us haven’t been able to increase payment rates. This challenge has many clinicians requesting higher salaries and many practice owners wondering where the money will come from.
While the right answer to this problem can depend on your region and your specific practice culture, one remedy that can suit every company is to practice financial transparency with your employees and those whose wages depend on the success of your business. As costs everywhere increase, this will also be felt by your employees in their own personal finances, leading to potential increased labor expenses on your end. Ensuring your employees understand the costs to business and the revenue generated by their responsibilities is crucial to transparency. Additionally, having a better understanding of the small margin that is made on each visit may spur new ideas generated by your team for how to increase that margin and pass on some of the benefits to your team.
While pay is also commonly cited, a recent APTA report found 77% of therapists leaving for new positions cited work-life balance.3 Helping employees work efficiently and providing autonomy and flexibility to schedules can often combat the issue. So, you may not be able to effectively increase your margin, but you can still reap the benefits of an engaged team and reduce costly turnover while you are at it.
While we have hopefully seen the worst of the inflation rate, we are not yet through the challenges it will pose on the business of physical therapy. However, if the last few years have taught us anything, we are a profession that excels at finding a way to make a difference.
References:
1Obando, S. Construction’s supply chain outlook: more shortages, price hikes ahead. Construction Drive. November 14, 2022. Accessed November 29, 2022. https://www.constructiondive.com/news/supply-chain-construction-building-materials-price-2023/636442/
2Bureau of Labor Statistics. “Physical Therapists.” Accessed November 30, 2022. https://www.bls.gov/ooh/healthcare/physical-therapists.htm
3APTA. “New Report: Outpatient Practices Faced ‘Significant’ Employee Vacancy Rates.” Published September 21, 2022. https://www.apta.org/news/2022/09/21/workforce-benchmark-report-2022
Suzanne Leach, DPT, is a physical therapist with an undergraduate degree in finance. She is the Clinic Director for Rehabilitation & Performance Institute in Bowling Green, KY and can be reached at sleach@rehabilitationperformance.com.