Focus on Outpatient Rehabilitation

Like many other sectors of health care, the outpatient rehabilitation segment was hit hard by the onset of the COVID-19 virus. In August, the American Physical Therapy Association (“APTA”) published the results of a survey done in July of a large sample of physical therapists and physical therapist assistants. The report compared the results to an earlier survey completed in April/May and should provide investors with a sense of cautious optimism. However, with a recent spike in COVID-19 cases, how practices responded to and fared during the early weeks and months of the pandemic should be top of mind.

COVID-19 Impact on Operations

In the early stages of the pandemic, the volume of visits and treatment hours fell precipitously as physician referrals declined, concerned patients stayed away, practices instituted furloughs and layoffs, and some clinics closed entirely. The largest industry player, U.S. Physical Therapy (USPH/NYSE), indicated in an investor presentation that its visit volumes reached a low of 45% of pre-COVID levels in April. For the most part, treatment was limited to essential care. The situation dramatically impacted the finances of practices, owners and staff. According to the APTA, only 30% of practices had an emergency preparedness plan in place at the onset of COVID-19, leaving many operators woefully underprepared.

With input from various federal governmental agencies, such as the CDC and CMS, state governments, and health care associations, such as the APTA, new protocols for administrative operations and treatment were implemented. Of particular note was the increased utilization of telehealth to fill the treatment gap. Prior to the pandemic, telehealth was used as a care delivery solution by only a handful of PTs nationally. According to the APTA survey, by July nearly half of all PTs were providing video consults, with 13% of PTs seeing more than 10 patients per week. Critical to PT’s adoption of telehealth was the announcement in April that CMS and several major commercial carriers would allow PTs to bill for care provided to new and existing patients via telehealth solutions.

The 3rd quarter saw visit volumes and treatment hours recover somewhat though still well below pre-COVID-19 levels. Not surprisingly, larger players appear to have recovered somewhat faster than small ones. U.S. Physical Therapy even reported record quarterly earnings for the period ending September 30th, though revenue and patient visits remained modestly lower.

M&A Activity

Like many other sectors of health care, the outpatient physical therapy business remains highly fragmented with the top five providers accounting for only approximately 25% of the estimated 18,000 outpatient physical therapy sites.

In addition to the fragmented nature of the business and the demonstrated financial benefits resulting from scale, the outpatient physical therapy space has numerous other tailwinds supporting its positive outlook, including the aging of the U.S. population, the cost effectiveness of physical therapy relative to other treatment options (e.g., surgery), the preference for treatment paths that reduce or eliminate the use of opioids, the increasing ability of patients to seek out care from PTs without having to obtain a physician referral, and the general desire of people to lead healthier and more active lifestyles well into their later years. Along with the relative stability of government (Medicare and Medicaid) and commercial reimbursement, these demographic and market tailwinds will continue to make the outpatient physical therapy sector very attractive for investors and acquirors. We estimate that there are over 20 private equity-backed outpatient physical therapy platforms, most of which are actively looking to make acquisitions.

Deal activity in this season took somewhat of a pause in 2020 as a result of COVID-19. Transactions completed in the 2nd quarter were likely well underway by the time COVID-19 came on the scene. Those transactions also appear to be modest in size such that the impact of COVID-19 was easily understood and quickly diligenced. According to Capital IQ, while no transactions were announced during the 3rd quarter of 2020, commencing in October, deal activity began to pick up again. Of particular note, Select Rehabilitation acquired Kindred Healthcare’s RehabCare business, increasing Select’s overall lead in the rehabilitation segment. Overall, the number of announced transactions in 2020 through the first week of December was eleven versus twelve for the same period in 2019.


Despite suffering a bit of a downdraft in the 2nd quarter as a result of the dramatic decline in patient visits, the outpatient rehabilitation sector appears to have turned the corner vis-à-vis COVID-19. Adoption of safety protocols for patients and employees as well as expansion of telehealth utilization have made physical therapy safer and more comfortable for all involved.

The uptick in the number of COVID-19 cases occurring through late Fall is of some concern. Whether or not the increase in infections will lead to a decline in patient visits seen in the 2nd quarter remains to be seen; however, we believe that patients and employees have grown more comfortable with the efficacy of the safety procedures in place, and we won’t see a significant drop in visits.

On another hopeful note, it appears that the Pfizer and Moderna vaccines should be available for distribution and administration beginning in the next few weeks. As those vaccines, and others, roll out in the U.S. and the rest of the world, it’s possible that we can begin to get back to something akin to pre-COVID-19 normalcy.

Notwithstanding the anxiety due to COVID-19, we believe that M&A activity in the outpatient rehabilitation sector will continue as larger players look to further consolidate the space, and smaller players with less financial and other resources look to partner with other organizations in order to improve their chances of surviving and thriving during and after COVID-19.


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John Patterson

Managing Director, Healthcare Industry Team Leader

Marc Gondek

Director, Investment Banking

With one of the most challenging years in living memory coming to a close, and hindsight being 2020 (pause for groans), we asked the members of our Restructuring Advisory team to reflect on the lessons of COVID-19 and share some insights that this year gave them.

Scott Eisenberg – Partner and Firm Co-Founder

  • We can work remotely very successfully.
  • It helps to have more contact as opposed to less. People feel isolated.
  • What is really important? It became very clear that so many of the activities that were “important” re-pandemic were not missed. Priorities came into focus.

Sheldon Stone – Partner and Practice Leader

As restructuring professionals, if there is one thing that we learned in the COVID era it is that our business is unpredictable.

At the onset of COVID, fellow restructuring professionals, bankruptcy attorneys, and lenders thought we would all be busy come the summer months. Then came PPP, federal subsidies to the unemployed, and banks relaxing covenants. Thus, the forecast changed to “the wave will hit in Q4/Q1.”

Fortunately, Amherst’s Restructuring Practice became somewhat busy in July and very busy in August and this trend continues for us in November. However, in speaking with other professionals, many are not so busy. In fact, some ABL lenders who have had a strong 2020 have seen their business drop off dramatically in October.

So why the inability to predict what the market is doing?

Well, because this is an economy that we’ve never seen before. Some industries, such as food, food delivery, and online retail are flourishing. All of these support consumer demand in COVID. Other industries such as air travel, hotel, and dine-in restaurants are suffering and will continue to do so for the foreseeable future. Interestingly, though, if the data is broken down further, some of these compromised industries are faring well in states that have less restrictions regarding occupancy and mask wearing. So while it isn’t surprising that overall they were impacted by COVID, the degree to which they are affected is still dependent on how well their geographic location is faring against the pandemic.

So, what does this all mean? Really more of the same.

With some senate results still TBD as of this writing, the election will play a big part regarding what will a stimulus package look like if the Democrats end up with more seats in the Senate along with the House of Representatives and the White House. Right now, we know little other that there will likely be some sort of stimulus package for small business. Also, if there is additional federal aid for the unemployed, will this continue to affect the labor shortage that we continue to experience? Will banks amend and extend if the new wave of COVID continues and certain states and or the country go into lockdown again? All these questions and more assure us one thing, inability to predict will stay the norm.

Bruce Goldstein – Managing Director

Thoughts on the lessons I’ve learned during COVID: First and foremost, people can be incredibly adaptable and resilient when adverse conditions occur (I’ve jokingly called it “The MacGyver Effect”).

In business school, one of the fundamental precepts we learned – besides the concept of the “widget” – is the concept of the “rational economic individual.” Having said that, during this COVID environment, we’ve seen numerous examples of behavior that swing between both rational and irrational.

  • We’ve seen people panic buying and hoarding consumable items in seemingly irrational quantities, including toilet paper and flour. They weren’t using more, they were just filling their closets. This is different than the purchases of sanitizing products including hand sanitizer, wipes, Lysol spray, etc.
    • The most commonly available statistic that I found – that was really interesting – is that the average person uses 1 roll of toilet paper per weeek.
  • We’ve seen the outer limits of human sympathy and empathy – people on the health care front lines that risk their lives for those sick and infected individuals that they didn’t know previously and, on the other end, people who feel it’s a violation of their personal rights to be required to wear a mask indoors (and thereby infringe on the rights of others to not possibly be exposed or infected).
    • And we have also seen people who have the inability to isolate themselves for a few days without infecting others, in comparison to Anne Frank and seven others, whose family was able to hide undetected in an attic for 25 months during World War II.
  • We’ve seen companies adopt technology up to 200 times faster than previously imagined and adopt remote work capabilities – previously rejected by numerous companies prior to the lockdown. The rapid embrace of remote work may allow companies to save considerable sums and thrive going forward in ways not previously contemplated.
    • We’ve also seen people who have “gone back to nature” in unprecedented numbers by enjoying the “non technological” pursuits of gardening, baking bread, and other assorted hobbies since they aren’t leaving their homes (not to mention the substantial sums of money deployed to fix up homes, buy new outdoor furniture, increase outdoor living space with decks and other accoutrements including fire pits, outdoor heaters, outdoor TVs, etc.).
  • No different than remote work, we’ve seen people create their own educational “pods” for their kids to be able to continue their educations with groups of like-minded families to allow the children to “be educated” while school is not in its “normal” environment.

At the end of the day, people have shown great amounts of resilience and adaptability to continue doing “what needed to get done.”

James Morden – Managing Director

I’d say the concept is that flexibility is at a premium.

We have seen in the past that clients that are proactive in identifying needs for change in their business and who bring an open-minded approach to managing the business through a downturn have quicker turnarounds and a higher likelihood of long-term success.

That was on display this year like no other, as being able to make sweeping changes on a compressed timeline helped keep certain clients afloat. Moreover, beyond letting go of initial resistance to change and being aggressive in streamlining their business, it also became more crucial than ever for clients to be willing to adjust even their change plans on the fly.

Adaptability = survival.

Brian Phillips – Managing Director

Those dang Millennials were right!

The Millennial generation has embraced technology in ways and with a passion that my generation (Gen-X) and prior generations can’t even imagine. From smart home technology to location tracking apps to video games and conferencing, most Millennials see no limits on what can be done with technology today.

For years, many of them have been questioning the traditional office setting. Standard hours every day and in person meetings, they said, were unnecessary to getting their job done. They said it shouldn’t matter whether they preferred to work from 9-5 or from midnight to 8 a.m.; nor should it matter if they sat at their desk for eight hours a day or if they work from a park bench so long as they get the job done, right?

With the closure in 2020 of so many offices and so many people moving to work from home, the use of connectivity technology (cell phone, video conferencing, email, chat, team collaboration software, text, etc.) has exploded. And you know what? It works!

Yes, there are still some things that need to be done in person and certain industries are impacted more than others, but 2020 has provided a decade of advancement toward remote “everything” in just one year. As is the case with most major changes, I’m sure there will be some amount of bounce back toward traditional office settings when this is all over, but I think it’s clear that many office-setting changes will be permanent improvements over the old way of doing things.

Shareef Simaika – Director

What I learned during COVID so far:

How hard it can be to change and adapt when faced with facts that are difficult to accept. In other words, people have a very difficult time looking ahead and recognizing likely outcomes when that outcome doesn’t “fit” with what they consider to be possible.

Back in March and April, we began hearing from the experts that this wasn’t going to go away and that we probably wouldn’t have a vaccine until year end at the earliest. But the response from governments, businesses, and individuals has been consistently (relatively) short-term in nature, with surprisingly little acknowledgement that things will stay this way for some time.

For example, state and local governments began implementing rules that had very short time horizons, only to extend them repeatedly. This created confusion and frustration when milestone dates were arbitrarily pushed back repeatedly.

Many businesses were paralyzed by the uncertainty and didn’t take steps to make changes, or even develop contingency plans, to adapt to this new reality.

The healthcare industry and governments focused on short-term issues like the lack of ventilators and how to reuse disposable masks, but put little effort into how to address PPE and hospital capacity issues longer-term to avoid those same issues this fall and winter – challenges we are starting to hear about now.

Many schools failed to plan on how to resume in-person learning this fall, assuming that the state/local authorities would tell them what to do or that things would improve on their own.

In all of these examples, many would argue that these challenges were easy to foresee months ago, but this is true only if you accept the paradigm shift that has occurred. COVID shouldn’t be a permanent change; life should return to “normal” at some point, but it is important to recognize that the only thing that is truly “permanent” and reliable is change itself. The sooner we recognize and adapt to it, the more likely we will have a positive outcome.

Erik Morandi – Analyst

Mike Tyson famously said, “everyone has a plan until they get punched in the mouth.” The sudden nature of the pandemic represents a learning curve for all nations and businesses. With the possible exception of Bill Gates, the pandemic is similar to an asteroid hitting the earth as nobody saw it coming.

While the full impact of the pandemic on economies remains unknown, our experience at Amherst Partners has taught us many valuable lessons when it comes to managing distress during an unprecedented event. At the onset of the crisis, we observed the lifeline that government stimulus provided to companies that were distressed pre-pandemic and whose distress only accelerated as a result of the pandemic. The importance of acting fast, being rational and thinking ahead provided companies with resilience to the unknown. Strong communication lines internally and externally, and daily management of performance and reporting of cash are key considerations to a resilient strategy. Moreover, the ability to think outside of the box to develop unique or unorthodox solutions to problems, such as labor shortages, is a strategy that must always be on the table for companies to maintain resiliency during this time and continue to round the corner in their turnaround efforts.

With the US election results still being resolved and the unknown future of pandemic, the biggest lesson that we have learned is to “become comfortable with the uncomfortable.”


Scott Eisenberg

Partner & Co-Founder

Sheldon Stone

Partner, Restructuring Practice Leader

Bruce Goldstein

Managing Director, Restructuring Advisory Services

James Morden

Managing Director, Restructuring Advisory Services

Brian Phillips

Managing Director, Restructuring Advisory Services

Shareef Simaika

Director, Restructuring Advisory Services

Erik Morandi

Analyst, Restructuring Advisory Services