U.S. Physical Therapy Announces Change in Medicare Rate Reduction for the Remainder of 2024

Rhea-AI Summary

U.S. Physical Therapy, Inc. (USPH) addresses the 3.5% reduction in the Medicare physician fee schedule for therapy services for 2024 in the Consolidated Appropriations Act, 2024. The Act decreases the reduction to approximately 1.8%, not retroactive to January 1, 2024. This change is estimated to increase revenue by $2.3 million and EBITDA by $2.0 million for the company, resulting in a total revenue reduction of $3.7 million and EBITDA reduction of $3.3 million for full year 2024.

Positive

• The Consolidated Appropriations Act, 2024 addresses the 3.5% reduction in the Medicare physician fee schedule for therapy services for 2024.
• The Act decreases the reduction to approximately 1.8% effective from March 9, 2024.
• The change is estimated to increase U.S. Physical Therapy, Inc.'s revenue by $2.3 million and EBITDA by $2.0 million.
• The company now expects a total revenue reduction of $3.7 million and EBITDA reduction of $3.3 million for full year 2024, as compared to 2023 rates.

Negative

• None.

Insights

Healthcare Financial Analyst

The recent legislative amendment reflected in the Consolidated Appropriations Act, 2024, which mitigates the previously expected Medicare physician fee schedule reduction for therapy services, presents a favorable financial turn for U.S. Physical Therapy, Inc. (USPH). The company's revised projection of a smaller reduction in Medicare rates from 3.5% to approximately 1.8% is expected to lessen the anticipated revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) impact. This news is particularly significant for USPH given that Medicare likely constitutes a substantial portion of their reimbursement mix.

From a financial perspective, the reduced impact on revenue and EBITDA is material, with management estimating a revenue preservation of approximately $2.3 million and an EBITDA improvement of around $2.0 million for the full year of 2024. For stakeholders, this implies a lessened financial strain and potentially better-than-anticipated performance metrics for the company. It is important to analyze how these changes might affect the company's valuation, as EBITDA is often used as a proxy for operating profitability in valuation models.

Health Policy Expert

The adjustment in Medicare rates is a direct consequence of healthcare policy changes at the federal level. The initial 3.5% reduction was part of a broader effort to control Medicare spending, but such cuts can have significant implications for service providers. The revised 1.8% reduction demonstrates how legislative action can directly influence healthcare businesses' financial health. It is crucial to understand the dynamics of healthcare policy and its implications for service reimbursement, as these factors can lead to shifts in the operational and strategic planning of healthcare entities like USPH.

Furthermore, the non-retroactive nature of the rate change, effective March 9, 2024, requires careful consideration. Providers must navigate the complexities of billing and reimbursement adjustments mid-year, which can introduce administrative challenges. The policy landscape continues to be a critical area for healthcare providers to monitor, as changes can swiftly alter the economic environment in which they operate.

HOUSTON--(BUSINESS WIRE)-- U.S. Physical Therapy, Inc. (“USPH" or the “Company”) (NYSE: USPH), reported today that the 3.5% reduction in the Medicare physician fee schedule for therapy services for 2024 (as compared to 2023 rates) has been addressed in the “Consolidated Appropriations Act, 2024” (“Act”) signed into law on March 8, 2024. The Act decreased the Medicare reduction for the remainder of 2024; as a result, the Company now estimates that the Medicare rate reduction effective March 9, 2024, will be approximately 1.8% rather than 3.5%. The change in rate is not retroactive to January 1, 2024.

In the Company’s earnings announcement on February 28, 2024, management noted that the 3.5% reduction in Medicare rates was expected to reduce the Company’s revenue by approximately $6.0 million for the full year of 2024 which would equate to an EBITDA reduction of approximately $5.3 million. Management estimates that today’s reported change in the Medicare rate will increase its revenue by approximately $2.3 million versus its previous expectations, which would equate to an increase in EBITDA of approximately $2.0 million. Therefore, management now expects the Medicare rate reductions in 2024 (as compared to 2023 rates) to reduce revenue by approximately $3.7 million for full year 2024 (rather than $6.0 million), which would equate to an EBITDA reduction of approximately $3.3 million (rather than $5.3 million), all as compared to full year 2023.

Forward Looking Statements

This press release contains statements that are considered to be forward-looking within the meaning under Section 21E of the Securities Exchange Act of 1934, as amended. These statements contain forward-looking information relating to the financial condition, results of operations, plans, objectives, future performance and business of our Company. These statements (often using words such as “believes”, “expects”, “intends”, “plans”, “appear”, “should” and similar words) involve risks and uncertainties that could cause actual results to differ materially from those we expect. Included among such statements may be those relating to new clinics, availability of personnel and the reimbursement environment. The forward-looking statements are based on our current views and assumptions and actual results could differ materially from those anticipated in such forward-looking statements as a result of certain risks, uncertainties, and factors, which include, but are not limited to:

• changes in Medicare rules and guidelines and reimbursement or failure of our clinics to maintain their Medicare certification and/or enrollment status;
• the impact of future public health crises and epidemics/pandemics, such as was the case with the novel strain of COVID-19 and its variants;
• revenue we receive from Medicare and Medicaid being subject to potential retroactive reduction;
• changes in reimbursement rates or payment methods from third party payors including government agencies, and changes in the deductibles and co-pays owed by patients;
• compliance with federal and state laws and regulations relating to the privacy of individually identifiable patient information, and associated fines and penalties for failure to comply;
• competitive, economic or reimbursement conditions in our markets which may require us to reorganize or close certain clinics and thereby incur losses and/or closure costs including the possible write-down or write-off of goodwill and other intangible assets;
• one of our acquisition agreements contains a put right related to a future purchase of a majority interest in a separate company;
• the impact of future vaccinations and/or testing mandates at the federal, state and/or local level, which could have an adverse impact on staffing, revenue, costs and the results of operations;
• our debt and financial obligations could adversely affect our financial condition, our ability to obtain future financing and our ability to operate our business;
• changes as the result of government enacted national healthcare reform;
• business and regulatory conditions including federal and state regulations;
• governmental and other third party payor inspections, reviews, investigations and audits, which may result in sanctions or reputational harm and increased costs;
• revenue and earnings expectations;
• some of our acquisition agreements contain contingent consideration, the value of which may impact future financial results;
• legal actions, which could subject us to increased operating costs and uninsured liabilities;
• general economic conditions, including but not limited to inflationary and recessionary periods;
• actual or perceived events involving banking volatility or limited liability, defaults or other adverse developments that affect the U.S. or international financial systems, may result in market wide liquidity problems which could have a material and adverse impact on our available cash and results of operations;
• our business depends on hiring, training, and retaining qualified employees
• availability and cost of qualified physical therapists;
• competitive environment in the industrial injury prevention services business, which could result in the termination or non-renewal of contractual service arrangements and other adverse financial consequences for that service line;
• our ability to identify and complete acquisitions, and the successful integration of the operations of the acquired businesses;
• impact on the business and cash reserves resulting from retirement or resignation of key partners and resulting purchase of their non-controlling interest (minority interests);
• maintaining our information technology systems with adequate safeguards to protect against cyber-attacks;
• a security breach of our or our third-party vendors’ information technology systems may subject us to potential legal action and reputational harm and may result in a violation of the Health Insurance Portability and Accountability Act of 1996 of the Health Information Technology for Economic and Clinical Health Act;
• maintaining clients for which we perform management, industrial injury prevention related services, and other services, as a breach or termination of those contractual arrangements by such clients could cause operating results to be less than expected;
• maintaining adequate internal controls;
• maintaining necessary insurance coverage;
• availability, terms, and use of capital; and
• weather and other seasonal factors.

Many factors are beyond our control. Given these uncertainties, you should not place undue reliance on our forward-looking statements. For additional information regarding these and other risks and uncertainties, that could cause actual results to differ materially from those contained in our forward-looking statements, please refer to “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on February 29, 2024 and any risk factors contained in subsequent quarterly and annual reports we file with the SEC. Our forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as required by law, we are under no obligation to update any forward-looking statement as a result of new information, future events, or otherwise, except as required by law.

About U.S. Physical Therapy, Inc.

Founded in 1990, U.S. Physical Therapy, Inc. operates 672 outpatient physical therapy clinics in 42 states. The Company's clinics provide preventative and post-operative care for a variety of orthopedic-related disorders and sports-related injuries, treatment for neurologically-related injuries and rehabilitation of injured workers. In addition to owning and operating clinics, the Company manages 41 physical therapy facilities for unaffiliated third parties, including hospitals and physician groups. The Company also has an industrial injury prevention business which provides onsite services for clients’ employees including injury prevention and rehabilitation, performance optimization, post-offer employment testing, functional capacity evaluations, and ergonomic assessments.

More information about U.S. Physical Therapy, Inc. is available at www.usph.com. The information included on that website is not incorporated into this press release.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240311910923/en/

U.S. Physical Therapy, Inc.

Carey Hendrickson, Chief Financial Officer

email: chendrickson@usph.com

Chris Reading, Chief Executive Officer

(713) 297-7000

Three Part Advisors

Joe Noyons

(817) 778-8424

Source: U.S. Physical Therapy, Inc.

FAQ

How did the Consolidated Appropriations Act, 2024 impact USPH's revenue for 2024?

The Act decreased the Medicare rate reduction from 3.5% to approximately 1.8%, resulting in an estimated increase of $2.3 million in revenue for USPH.

What was the initial revenue impact expected by USPH due to the 3.5% Medicare rate reduction?

USPH initially expected a revenue reduction of approximately $6.0 million for the full year of 2024.

How much is the estimated EBITDA increase for USPH following the change in the Medicare rate?

The change in the Medicare rate is expected to increase USPH's EBITDA by approximately $2.0 million for 2024.

What is the revised estimate for USPH's revenue reduction for full year 2024?

The company now expects a revenue reduction of approximately $3.7 million for 2024, as compared to $6.0 million initially projected.

Is the change in the Medicare rate retroactive to January 1, 2024?

No, the change in the Medicare rate is not retroactive to January 1, 2024.