Valuing Physical Therapy Practices in 2025: A Comprehensive Guide for Therapists, Owners, Investors, and M&A Professionals

As the U.S. healthcare system continues to shift toward value-based care, musculoskeletal and rehabilitative services are playing a more central role in improving outcomes and lowering costs. Among these services, physical therapy (PT) practices stand out for their scalability, recurring revenue models, and alignment with emerging population health strategies. This has made them attractive targets for private equity firms, strategic consolidators, and health systems—fueling demand for accurate and defensible valuations.

Whether you're preparing to sell a PT group, evaluating a partnership opportunity, or seeking to benchmark financial performance, this article explores the key valuation methodologies, drivers, and risk factors that determine the worth of a physical therapy business.

I. Industry Context: Why PT Practices are in Demand

The physical therapy industry is a large and steady-growing sub-segment within the healthcare industry, focused on improving mobility, managing pain, and enhancing overall quality of life for patients, often after a significant injury or surgical procedure. Services are provided in various settings including outpatient clinics, hospitals, post-acute facilities, and at-home, and address a wide range of conditions from orthopedic and neurological disorders to cardiopulmonary issues. According to one source, the U.S. physical therapy market is valued at approximately $49.48 billion, with projections to reach $61.70 billion by 2030, implying a CAGR of 4.6%.

Key Growth Drivers

Key growth drivers for the industry include the following:

• Aging Population: The growing number of older adults, particularly baby boomers, is significantly increasing demand for physical therapy services. By 2030, all baby boomers will be over 65, representing about 20% of the U.S. population. This demographic shift is driving the need for services related to mobility maintenance, fall prevention, and management of age-related conditions like arthritis and osteoporosis.

• Prevalence of Chronic Conditions: The rising incidence of chronic diseases such as diabetes, cardiovascular disorders, and obesity is fueling the need for physical therapy interventions. These conditions often require long-term rehabilitation and management, contributing to sustained industry growth.

• Technological Advancements: Integration of artificial intelligence, robotics, and virtual reality in physical therapy is enhancing treatment efficiency and patient engagement. These technologies are revolutionizing rehabilitation processes, making treatments more interactive and personalized. However, many of these technologies may be used to compete with, rather than augment, traditional physical therapy.

• Shift Towards Preventive Care: Increased awareness of the benefits of physical therapy in preventing injuries and maintaining overall wellness is driving proactive patient engagement. This trend is expanding the market beyond traditional rehabilitation services.

• Expansion of Telehealth Services: The adoption of telehealth in physical therapy has significantly increased, especially post-pandemic. This trend is improving accessibility to care, particularly for patients in remote areas, and is expected to continue driving market growth.

• Sports and Occupational Injuries: The growing participation in sports activities and the prevalence of work-related injuries are creating a consistent demand for physical therapy services. This driver particularly impacts orthopedic and sports rehabilitation segments of the industry.

Reimbursement Outlook

Medicare fee schedule adjustments in 2025 bring continued pressure, with the conversion factor dropping by 2.8–3.4% (estimated around $32.35) marking the fifth consecutive annual cut for PT services. On a brighter note, CMS proposals include increased therapy thresholds (raising the KX modifier level to $2,410) and easing administrative burdens like plan-of-care requirements and PTA supervision mandates, which may help offset some revenue loss. Looking ahead to 2026, CMS is proposing a 3.8% increase in the conversion factor for rehab services, though changes to RVUs and efficiency adjustments may mute the net impact or even result in modest net declines across many CPT codes. Private payers continue to tighten control through utilization management, visit limits, and MPPR rules that reduce reimbursement for multiple services delivered in a single session. These trends contribute to stagnant or declining commercial reimbursement overall.

In summary, while 2026 may offer a potential reset with a proposed increase in the fee schedule, physical therapy providers should expect flat to slightly declining reimbursement through 2025, followed by modest adjustments in 2026 (contingent on final policy decisions) with ongoing pressure from private insurers.

II. Top Reasons to Get a Valuation of Your Physical Therapy Practice

The following is a list of common reasons for commissioning a valuation analysis or appraisal of a physical therapy practice:

1. Preparing for a Sale or Strategic Partnership

• To establish a defensible asking price when marketing the business

• To evaluate offers from private equity, strategic buyers, or joint venture partners

• To understand how your practice compares to market benchmarks

  
  

2. Internal Ownership Transition

• For buy-in or buy-out of partners or associates

• To support fair and compliant equity allocation among clinicians

• To plan for generational succession or family transfers

3. Compliance with Healthcare Regulations

• To support Fair Market Value (FMV) and Commercial Reasonableness (CR) assessments required by Stark Law and Anti-Kickback Statute in deals involving ownership by other healthcare providers

• To document compliance in joint ventures, especially when there is a referral relationships (hospitals, ancillary service providers, or physicians)

  
  

4. Estate & Tax Planning

• For gift or estate tax reporting to the IRS (especially for closely held businesses)

• To support asset protection strategies

• To plan for long-term wealth transfer or charitable contributions

  
  

5. Litigation or Dispute Resolution

• For divorce proceedings involving business asset division

• In shareholder or partnership disputes

• For economic damages assessments in legal proceedings

  
  

6. Business Planning & Strategic Growth

• To establish a valuation baseline for performance benchmarking

• To support capital raise, refinancing, or line-of-credit applications

• To identify value drivers and areas for operational improvement

III. Valuation Approaches for Physical Therapy Practices

Valuation professionals typically apply three core methodologies to estimate the value of a PT practice:

Income Approach (Discounted Cash Flow or Capitalization of Earnings)

This approach values a business based on the present value of its expected future earnings or cash flows. It’s most appropriate when a practice has a stable operating history and predictable future performance.

Key assumptions include:

• Normalized EBITDA or owner’s discretionary earnings

• Growth rate assumptions (organic and acquisitive)

• Risk-adjusted discount rate (typically 10–25% for physical therapy practices)

• Capital expenditure needs

Pros: Based on the business’ future earning power

Cons: Sensitive to forecasting errors and discount rate subjectivity

Market Approach (Comparable Transaction Method, e.g. Market Multiples)

This method uses observed EBITDA multiples or revenue multiples from recent M&A transactions or public companies in the outpatient rehabilitation space. Typical multiples for small to medium -sized physical therapy practices are within the range of 3x to 10x EBITDA, depending on a wide variety of factors.

This article includes more details and information about physical therapy valuation multiples.

Pros: Easy to benchmark; useful in active M&A environments

Cons: Requires access to quality private market data and careful adjustment for practice size, margin, geography, and a variety of other factors

Asset-Based Approach

Used only when the business is underperforming or being liquidated. The value is derived from the net assets (e.g., equipment, leasehold improvements) minus liabilities.

Pros: Useful in distressed scenarios

Cons: Intangible value of the practice can be difficult to quantify under this method

IV. Key Value Drivers in Physical Therapy Practice Valuation

Several specific factors can materially influence a PT practice’s valuation multiple:

Earnings Quality

Buyers and valuation professionals place significant emphasis on normalized EBITDA and / or cash flow. Adjustments often include:

• Owner compensation (if above/below market)

• Non-recurring revenue or expenses

• Related-party lease arrangements

• Post-transaction adjustments

• Out-of-period adjustments

Growth Potential

Discount rates and valuation multiples are a function of perceived risk and growth. Key considerations within the physical therapy industry related to growth include the following:

• Profit Margins & Operational Efficiency: Higher EBITDA margins, driven by optimized therapist productivity, efficient scheduling, and strong billing practices, result in stronger valuations.

  
  

• Scale & Number of Locations: Multi-location practices with regional density typically receive higher multiples due to scalability, brand strength, and operational efficiencies.

  
  

• Owner Dependence & Management Structure: Practices with a strong management team and minimal reliance on the owner for day-to-day operations are valued higher, as they present a smoother transition for buyers.

Risk Factors

Key considerations within the physical therapy industry related to risk include the following:

• Revenue Diversification & Payer Mix: Practices with a balanced mix of commercial insurance, Medicare, workers’ compensation, and cash-pay services tend to command higher multiples, as they are less dependent on low-reimbursement payers.

  
  

• Referral Sources & Patient Volume Stability: A diversified and stable referral network (from physicians, employers, and direct access patients) reduces risk and increases valuation.

  
  

• Regulatory & Compliance Risks: Adherence to Medicare regulations, state licensing, and billing compliance minimizes legal risks, making the practice more attractive to buyers.

V. Current Market Trends in PT M&A

Following years of increasing private equity involvement in the segment dating back to 1995, the number of announced physical therapy M&A transactions has fallen off a cliff in recent quarters following the late 2021 peak. It's unclear what exactly is leading to the decline, beyond general healthcare M&A market softness and possibly concerns around the viability of virtual technology platforms that can compete with traditional clinic-based physical therapists.

The decline in total volume corresponds with non-existent PE platform buyout activity, as a grand total of zero platform buyouts were announced in 2024.

Physical Therapy EBITDA Multiple Trends

Larger physical therapy platforms typically command higher EBITDA multiples than smaller independent clinics due to their scale, diversified revenue base, and reduced operational risk. These platforms benefit from centralized management, robust referral networks, and greater negotiating leverage with payers and vendors, factors that enhance profitability and stability. Additionally, buyers place a premium on the platform’s ability to support future growth through acquisitions or de novo expansion, while smaller clinics may be more dependent on a single provider or location. This combination of scalability, infrastructure, and lower risk profile makes larger platforms more attractive and valuable in the eyes of strategic and financial buyers.

According to our database, multiples for larger physical therapy platforms with EBITDA of over $5 million annually range from 10x to 16x EBITDA.

Cash Flow Multiples for Small Physical Therapy Clinics

There are a number of small 1-5 provider physical therapy clinics listed for sale at any given time, but it's difficult to glean much useful information from data on smaller clinics where context around the level of owner involvement is unavailable. A clinic making $200k per year in cash flow for an absentee owner is much different from a clinic making $200k per year in take-home for a full-time physical therapist-owner. Our study of current and recently removed businesses for sale shows a range of multiples from 2.12x cash flow to 3.56x cash flow at the 25th and 75th percentiles, with a median of 2.71x.

VI. Final Thoughts: Keys to Maximizing Value

If you're a PT practice owner or executive planning to explore a sale or equity partnership, consider the following strategies to enhance your valuation:

• Increase Visit Volume and Optimize Therapist Productivity: Maximize patient throughput by streamlining scheduling, reducing no-shows, and managing therapist caseloads effectively—driving revenue without proportionally increasing costs.

  
  

• Diversify Referral Sources and Build Direct Access Channels: Reduce reliance on any single physician or referral group by developing a broad network of referral sources and leveraging direct-to-consumer marketing in states that allow direct access.

  
  

• Standardize Operations and Implement Scalable Infrastructure: Use consistent clinical protocols, modern EMR systems, centralized billing, and strong administrative processes to support multi-site growth and attract platform buyers.

  
  

• Ensure Compliance: Maintain strong documentation, coding accuracy, and audit-ready clinical notes.

  
  

• Professionalize Financials: Buyers prefer accrual-based, GAAP-compliant statements.

About HealthFMV

HealthFMV specializes in appraising healthcare businesses and services arrangements, including physical therapy clinics and provider groups.

• Business Valuation: We perform independent, third-party valuations of healthcare businesses to document regulatory, tax, and financial reporting compliance, resolve ownership disputes, and help ensure both parties to the transaction are comfortable with the financial terms.

  
  

• Transaction Advisory: We work with healthcare business owners, organization executives, providers, and their health lawyers to develop transaction structures and deal terms that further their business objectives while maintaining compliance with the complex healthcare regulatory environment.

  
  

• Services Arrangements: We prepare fair market value and commercial reasonableness opinions for a variety of healthcare services arrangements including management services, hospital-based specialty stipends, case rates and PC/TC splits, block leasing, and shared savings distributions, among others.

Contact Will Hamilton at whamilton@healthfmv.com with questions about our healthcare valuation services or to discuss your specific situation. Visit scoperesearch.co for more information about our healthcare M&A research services.