Physical Therapy Clinic Due Diligence Checklist
Physical therapy clinic due diligence is the stage of an acquisition where a buyer confirms that the business is what the seller says it is. A signed letter of intent usually opens the door to the clinic’s financial records, payer data, staff information and contracts, and what you find there can change the price, the structure or the decision to move forward.
This checklist is organized by topic so buyers can work through it with their accountant, healthcare counsel and lender. Rules for licensing, billing, ownership and employment vary by state and payer, and nothing here is legal, tax, billing or compliance advice. For a broader overview of the buying process, see our guide on how to buy a physical therapy practice.
Financial Records
Start by confirming that the clinic’s reported earnings are supported by its records.
- Several years of business tax returns and financial statements
- Year-to-date profit and loss statement and balance sheet
- Bank statements that tie to reported deposits
- Payroll records, including owner compensation
- A list of proposed add-backs with documentation for each
- Existing debt, equipment leases and any liens
Buyers should understand true earnings after paying a market salary to whoever will treat patients and manage the clinic. Our article on physical therapy practice valuation explains how those earnings influence price.
Payer Contracts and Reimbursement
Payer relationships are central to physical therapy clinic due diligence. Request:
- Revenue and visit volume by payer for several years
- Copies of commercial payer contracts and fee schedules where available
- Medicare and Medicaid enrollment information
- Workers’ compensation and personal injury case volume and collection history
- Accounts receivable aging by payer
- Denial rates and common denial reasons
Payer contracts, Medicare and Medicaid enrollments and credentialing should not be assumed to transfer to a new owner. Depending on the deal structure, the buyer may need new enrollments or contracts, and claims may be delayed in the meantime. Healthcare counsel and billing professionals can help map out that process. Our guide to physical therapy payer mix covers how lenders view each category.
Therapists and Staff
In outpatient therapy, revenue walks out the door if clinicians leave. Review:
- A roster of therapists and assistants with tenure, licensure and caseload
- How many visits the owner personally provides each week
- Compensation, benefits and any bonus or productivity arrangements
- Employment agreements and restrictive covenants, which counsel should review because enforceability varies by state
- How workers are classified, which qualified professionals should review
- Recent turnover and open positions
Plans for keeping key clinicians often matter as much as the purchase price. We cover this in detail in our article on therapist retention after acquisition.
Referral Sources
Many clinics depend on a small group of physicians, surgeons or other providers for new patients. Ask for:
- New patient counts by referral source over several years
- Which relationships are personally maintained by the seller
- Any marketing arrangements or agreements with referral sources
Any financial relationship with a referral source should be reviewed by healthcare counsel. A buyer should also plan introductions to key referral partners during the transition.
Billing and Documentation Review
Billing practices can create liability that follows the business. Physical therapy clinic due diligence often includes:
- A sample review of documentation and claims by qualified billing or compliance professionals
- Any past audits, payment reviews, repayments or payer correspondence
- Policies for supervision of assistants and students
- Patient record storage and how records will transfer
The structure of the deal can affect which liabilities transfer, so counsel should advise on asset versus entity purchases and any protections in the purchase agreement.
Real Estate, Equipment and Operations
Physical assets and agreements deserve their own review:
- The clinic lease, remaining term, renewal options and assignment rights
- Landlord consent requirements
- Equipment list, age, condition and any financing or leases
- Software and vendor contracts and whether they can be assigned
- Business licenses, insurance policies and any past claims
How Due Diligence Connects to Financing
Lenders rely on much of the same information. Organized due diligence can make underwriting smoother and help a buyer explain the deal clearly. Many buyers use SBA 7(a) loans for practice acquisitions; eligibility and terms depend on the business, the buyer, the use of proceeds, program rules and lender review, and every loan is subject to approval.
If due diligence uncovers issues, buyers may renegotiate the price, change the structure, add protections to the purchase agreement or walk away.
Organizing the Process
Due diligence involves many documents and several advisors, so a simple structure helps. Buyers often:
- Create a shared request list and track what has been received
- Assign each topic to the right advisor, such as financial items to an accountant and contracts to counsel
- Schedule time in the clinic to observe operations and meet staff, with the seller’s permission
- Keep notes on open questions and follow up in writing
- Set an internal deadline for deciding whether to proceed
Sellers sometimes limit access to staff and referral sources until late in the process to protect confidentiality. Buyers should agree on when those conversations can occur and plan them carefully so they do not unsettle the team.
Red Flags to Watch For
- Reported earnings that do not reconcile with tax returns or deposits
- Heavy reliance on a single referral source or payer
- A seller who treats most patients personally with no transition plan
- Unresolved audits, repayment requests or billing complaints
- A lease that cannot be assigned or is near expiration
Final Thoughts
Thorough physical therapy clinic due diligence protects a buyer from paying for revenue that may not last. Focusing on payer contracts, clinician retention, referral sources and billing quality, alongside the financials, gives buyers a clearer view of the clinic they are acquiring.
US Medical Funding helps physical therapists finance the purchase of established clinics. Learn more about our physical therapy practice acquisition financing and our full range of physical therapy practice financing options.
