Vertical Integration in Physical Therapy Private Practice

By Richard Katz, PT, DPT, MA, PPS Payment Policy Committee

In an effort to provide the membership with information and guidance on emerging practice relationships, the PPS Payment Policy Committee established a Vertical Integration Task Force (VITF). The purpose of the task force was to further the activities of the previous Business Model Task Force ( The efforts of the task force produced a snapshot of the involvement of our membership in vertically integrated systems. The activities of the task force were consistent with the PPS position statement regarding business models.

“PPS endorses all physical therapists’ business models that improve the experience of care, improve the health of populations, and reduce per capita costs of health care.”1

A key to approaching involvement in a vertically integrated system is to fully comprehend that integration moves a practice from being fully autonomous to sharing information, and even financial risk, in managing a patient through their continuum of care. The integrated care literature distinguishes between different ways and degrees of working together. Three central terms in this respect are autonomy, coordination, and integration. While autonomy refers to the end of the continuum with least cooperation, integration (the combination of parts into a working whole by overlapping services) refers to the end of the continuum with the most cooperation, and coordination (the relation of parts) to a point in between.2

Distinction is also made between horizontal integration (linking similar levels of care like multiprofessional teams) and vertical integration (linking different levels of care like primary, secondary, and tertiary care).3 Horizontal integration involves the addition of business activities at the same level in the value chain. An example of this in physical therapy (PT) would be to add new programs to an existing clinic. If a private practice orthopedic clinic wishes to become more horizontally integrated, they might add vestibular, pelvic floor, or other PT-related products to their practice. Horizontal integration also occurs as practices join together in formal business relationships and networks to expand like services over a larger catchment area.4

To become vertically integrated, a PT practice would coordinate care with other entities that provide different levels of service. A vertically integrated entity seeks to control quality and cost over the continuum of care. A vertically integrated system would create referral relationships between health care providers between different levels of care. When a private practice wishes to market their services to a hospital or health care system to join a vertically integrated system, they may find that they need to be part of another horizontally integrated PT system in order to be marketable. This can be achieved by joining a PT network that markets to vertically integrated systems or by just bringing colleagues and competitors to the table if the system is seeking a greater geographic presence with the PT services. The group of practices would need an agreement on how metrics and outcomes would be tracked and presented to the hospital system.

An example of a vertically integrated system was provided by Yogi Matharu, PT, DPT, who is director of physical therapy clinical services and of physical therapy at Keck Hospital of the University of Southern California (USC) as well as at the USC Norris Cancer Hospital, and assistant professor of clinical physical therapy at USC. In their model, the physical therapy department at the hospital wanted to control the overall cost and quality of care for those individuals leaving the hospital for postsurgical care. They wanted to demonstrate to the hospital the value of good community-based physical therapy. In order to do so, they enlisted outside consultants to help develop a uniform outcome tracking system for their current therapeutic outcomes tool for select private practices in the community. They established internal criteria for participation. As a result, this network would be well positioned to implement forthcoming bundled payment models. There was no financial arrangement between the entities, but the hospital system had the upside of knowing that the affiliated physical therapy clinics would be able to manage their complex patients, decrease post-acute and home health care, and make appropriate referrals back to the hospital should postsurgical complications arise. The early results show that home health visits have diminished, patients are discharging the use of Coumadin earlier, and the physical therapists are utilizing extended (90 days) plans of care.

Over the past 20 years we have seen payers and providers expand their horizontal footprint via mergers and acquisitions of businesses with a similar platform. A hospital system merges with another hospital system; an insurance company merges with another payer. These types of activities create challenges from a monopolistic and anticompetition standpoint, but at the same time can create efficiencies and value if patients still retain choice and easy access to the system. The advent of the Accountable Care Act (ACA) is dictating that relationships move toward a more vertically integrated system. This is easily seen with Medicare’s Comprehensive Joint Replacement (CJR) program where providers at different levels of care must work toward a common value-oriented goal in providing the continuum of care. Such movement in health care also provides opportunities for physical therapists in private practice.

The VITF conducted a survey with 433 responses. Some of the results are presented here.

  • Only 18 percent of all respondents indicated that they were in some form of a vertically integrated relationship. Twenty-seven percent of the participants were in a single site practice, and 55 percent had 2–5 locations.
  • The majority of those involved in a vertically integrated relationship did so because they were invited to join by a health system or physicians. About 26 percent of those involved in these relationships did so out of the fear that by not participating they would lose their competitive position in the market. Forty-five percent of these relationships involved physicians and 42 percent involved hospitals. Over 50 percent of the respondents indicated that they were involved in relationships that involved other physical therapy practices. Without further exploration of the response, these relationships might be more reflective of a horizontally integrated relationship. The narrative responses seemed to indicate that this was the case.
  • Twenty-five percent of the respondents indicated that they are bearing financial risk in the relationship. Only 36 percent of the respondents considered themselves well positioned for the emerging changes in health care delivery in their market. A common approach in pursuing relationships with health care systems was to utilize existing relationships with referral sources to present a “package” to the hospital for specific diagnostic categories such as total knee arthroplasty (TKA). Presentation of outcomes and patient satisfaction weighed equally to cost and utilization metrics as seen here:

    Respondents stated that they used the following data to help negotiate their relationship with other entities:

    Functional Outcomes 42.4%
    Patient Satisfaction 45.5%
    Practice Utilization Metrics 54.5%
    Practice Costs 51.5%

Some of the members indicated that an area where they could have benefited from additional preparation was in the contracting aspect of the relationship. PPS has a model CJR collaborator agreement available along with a recorded companion webinar on it’s website ( In addition, PPS has recently prepared a contracting language guide that can assist when developing relationships with payers (also available on

In summary, the response from our membership shows that involvement in a vertically integrated model of care is in its infancy. The private practice owner would greatly benefit from learning how others are designing these business relationships. PPS will continue to develop resources that will assist members in establishing constructive models of care.

Vertical Integration Task Force Members
Richard Katz, PT, DPT, MA; Craig Johnson, PT, MBA;
Yogi Matharu, PT, DPT; and Bridget Morehouse, PT, MBA


1. PPS Board of Directors Position Statement, 2015.

2. Gröne O, Garcia-Barbero M. Trends in Integrated Care—Reflections on Conceptual Issues. World Health Organization, Copenhagen, 2002, EUR/02/5037864.



Katz,-Rick Richard Katz, PT, DPT, MA, is vice president of operations and payer contracting (West) at ATI Physical Therapy. He is a member of the APTA PPS Payment Policy Committee, a director on the California Physical Therapy Association (CPTA) Board of Directors, and chair of the CPTA Payment Policy Committee. He can be reached at

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