ATI Physical Therapy – Q4 2021 Update & Turnaround Potential – 5 November 2021

  • Public Equity
  • TMT
  • Global
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Former Director, Clinical at ATI Physical Therapy Inc


  • Key trends and developments in physical therapy segment relating to ATI Physical Therapy (NYSE: ATIP)
  • Challenges including labour rates, capacity constraints and margin compression
  • Levers to improve business operations, including flexible staffing models, labour incentives and cost reduction opportunities
  • Competitive positioning vs US Physical Therapy (NYSE: USPH), Select Medical (NYSE: SEM) and others
  • 12-18-month outlook strategic assessments, turnaround potential and growth strategy



How do you expect physical therapy visit volumes to trend over the next six months? How much deferred care or pent-up demand could there be for physical therapy and how might volumes vary regionally?

Specialist (SP): The pent-up demand is coming because elective surgeries were put on hold because of the pandemic. These patients are now getting surgeries, whether it’s a total hip, a total knee, a rotator cuff or what it may be, and yes, there’s going to be a rise in demand as patients get these surgeries done. The January hump of the pandemic probably was the biggest detractor at this point, though certainly last year the same type of thing was happening, and then this second rise, peaking out in August, September, put another hold on that, so yes, I see a jump in referrals for outpatient physical therapy. I think ATI is in a position to take advantage of this.

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CMS [Centers for Medicare and Medicaid Services] has cut rates substantially over the past couple years or so for physical therapy. Are there any unique factors to physical therapy that caused CMS to target the segment in 2020 with a 9% payment cut proposal?

SP: There’s only so much money in that pot to pay out for all providers, if you will. There are more and more people having to take advantage of that and there’s only so much money that comes out. Every year, CMS is going to be trying to reduce and look at areas where they feel like, I’d say, the quality of care is not where it needs to be. To give you an example, the latest is to not pay for physical therapist assistants who are treating patients, not pay for it, but reduce what is reimbursed for what a PTA does compared to what a PT does. Only PTs and PTAs can bill for physical therapy, no one else can, so now the CMS is going after who they think is less qualified to treat the patient. Yes, there’s constant pressure to that, and that’s where the national organisation, the American Physical Therapy Association, comes in because they’re in Washington and they’re fighting every day to fight these reductions. PTs are lumped in with the physician fee schedule, so that is tied together also. That’s a constant political battle to try to maintain reimbursement. I can remember in the ’70s- 80s that Medicare was such a low payer, you hoped you didn’t get a Medicare patient because commercial insurance paid so much better. Now CMS Medicare payments are good and what a change that has been over the years.

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How are you assessing the risk of further cuts from CMS in 2022? How material is the threat here? Additionally, is it likely commercial payers may follow suit, using CMS cuts as justification?

SP: Absolutely. Negotiating with commercial insurers for what you’re going to get paid can be very different across the United States and region-wise, what is going to happen. For an example, in Georgia the rates are set and there hasn’t been a whole lot of pressure on the commercial insurances, the reimbursement, it’s stayed pretty standard, but to get into more competitive markets, say in the northeast, there are a lot of negotiations that have to occur to maintain that. Even back in 1995, when I had my practice in Pennsylvania, managed care companies were coming and saying, “We’ve been paying you USD 100 for a visit there, we’re going to drop it to USD 50,” and all you can do is stand up to them. ATI has an advantage in that, with 500 clinics, they bring a lot of strength to the market in that they control a lot of the patients that come in. The larger the company, the better negotiations they’re going to have. In fact, my previous practice with Clemson Sports Medicine, we had 35 clinics, we were not big enough to negotiate with the commercial insurance agencies. Whereas ATI comes in and they go from 35 clinics to 70 clinics, they are ruling South Carolina in those negotiations, so that’s all about numbers there.

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Could you discuss the negotiation leverage ATI enjoys with commercial payers given its scale? What additional levers can it pull to preserve reimbursements with commercial players?

SP: You’re just in a better position, obviously, the more clinics you have to do that negotiation and, at least here in the southeast United States, they have been pretty successful in keeping commercial rates where they are. To give you just an example, in Columbus, Georgia there’s a Blue Cross Blue Shield office for the state of Georgia. They lowered reimbursement to this particular hospital very low and the hospital actually opted out of Blue Cross Blue Shield, which is a huge number of people, but they stood their ground and it took six months but Blue Cross Blue Shield came back and met the hospital’s demand. That’s the kind of toughness you have to have in your negotiation.

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How much of a material risk is the recent investigation from shareholder rights law firm, Robbins LLP, into ATI for misleading statements and violations of the Securities Exchange Act of 1934? ATI assured shareholders it’s the “employer of choice” for physical therapy clinicians and touted that its staffing strategy “would achieve significant labour savings” through a more productive model. Could you break down the potential scenario implications here and the broader risk to ATI?

SP: I was shocked when I read that because I’d always found that ATI was very up front and, I hate to use the word honest, I don’t want to say they’re dishonest, but I don’t know whether going public with a SPAC was a detriment to this or led to this. The employees may know this, but the public, in general, doesn’t really know this, and obviously nothing has happened yet. At this point, and into the next year, 12 months, I don’t know whether that really will make a big difference. I don’t think physical therapists looking for a job will look at that very closely. It hasn’t been publicised that much that my ATI physical therapy friends and people ask for advice whether to go work there, they’re not even thinking about that right now. I think in the financial world, yes, that’s a big issue, but in the rest of the world, right now it’s a low-key type of a thing. Does that mean that ATI is not a great place for physical therapists to go work? I think it’s a pretty solid place for people to go to work, and just speaking from my experience, they’re fair salaries, benefits, all just good, standard, middle-of- the-road benefits, and that type of thing. I think it can still be rated as a good place to go to work.

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Could you discuss the current climate surrounding labour costs for physical therapists? Is the spike in these costs temporary or do you expect it to become permanent? How comparable are these dynamics with what we’ve been observing in agency nursing where rates outpace salaries, thus exacerbating attrition issues?

SP: Most of the nursing staff are working for hospitals which have an ability to pay more. Just to give you an example, Medicare reimbursement, if you went to the northwest or the northeast United States, is much higher than what you’d get in Alabama or Georgia. Regionally, those reimbursements are a complicated formula that comes up with that. The average salaries in the south are much less than what you’d see in the northeast, and so the northeastern part of the United States is going to have trouble paying more for this, for physical therapists to come to work. It’s definitely an issue and probably, as we’ve seen with ATI losing staff during the pandemic, I think they’re going to have to be offering bonuses, probably is the first route you go, and some uptick in pay. In areas like the south, where reimbursement is not that high, again, the pot of money to do this is not all that big. Again, a larger company like ATI, hopefully, has the resources to raise those salaries, but yes, it is going to affect that price. I’d say a hospital system has more ability to do that than, say, an ATI or a physical therapy company.

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What are the working capital needs of a business such as ATI in normal times? Could a reopening spike create a working capital problem? Is there a material lag across providing services, paying employees and receiving reimbursement?

SP: Yes, it is expensive to do that. When I was with ATI, I believe they had 800 clinics and I see on the website now it’s 500, so obviously they’ve closed some non-productive clinics. Yet, on LinkedIn I see, it seems like once or twice a week there’s a new clinic opening up, which, again, if it’s a de novo deal, it costs a lot more than acquiring a practice to set up that individual practice because you’re having to buy new equipment and so forth. I would guesstimate that it would be USD 300,000-400,000 to get a new place set up and equipped and that type of thing, so that is pretty expensive to do. Of course, if you acquire clinics and you’re paying the previous owners X amount of money, hopefully you’re getting good value there, but they’re already set up and they already have the referral base and you hope to keep people and you entice them to stay. You can hit the ground running. Whereas with a brand-new start-up, then there are going to be much larger marketing costs to get in front of physicians and build that practice up.

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How much contract labour has ATI used historically? Is this a scalable short-term solution to therapist attrition as the company aims to revamp its labour force?

SP: It certainly is, and you pay a whole lot more for contract, or what we call travellers, in the profession. I have some nursing friends who are making ungodly salaries all over the United States where there are shortages. That is a viable way to get back in. Generally, these are 13-week segments that a PT would be under contract, and of course it can be renewed and that type of thing. It’s a little more costly, obviously, but that is one route to go. Then adding to that, what I think happened, and I can understand, pandemic starts, in states where lockdown, in my opinion, has been draconian, in the south it wasn’t quite that bad, you had to put your staff on furlough, so what did those staff do? They looked to go work someplace else and they found jobs, so they’re not available to come back. It is going to take big recruitment efforts and obviously bonuses and that type of thing to entice people back and to build that back. It’ll be a process but I think they’ll be able to do it.

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Why do you think labour issues have affected ATI so severely, especially given your comments about the company being a good place to work with favourable wages? Players such as Select Medical and US Physical Therapy have not had the same labour challenges. Why is this the case? What might competitors be doing differently or more efficiently?

SP: I can surmise that these companies, certainly under the same pandemic rules, I believe they must have done some type of a furlough salary, maintained benefits, done things to keep that core of therapists basically on board. Whether they rotated them in through the clinic or that type of thing, I’m not sure, but I think they managed that a different way. ATI thought, “Oh my gosh, our reimbursement is down, our patient load is down, we’ve got to furlough them. Do we have the money to keep that employee somewhat engaged or with some salary to keep them on board?” Again, I don’t know that as a fact, I don’t know how they managed their furloughed bases, but obviously it didn’t work. I have to go to the executive group, and how much experience do they have in dealing with physical therapists and that particular market. They may be good business people, but without a background in physical therapy, maybe they didn’t have that insight. Plus, for USPT and Select Medical, their business plan was to buy larger companies like NovaCare, Physiotherapist all of which were very strong company physical therapy groups, and kept that management in place that kept them successful. I think maybe they had more input into upper management and how to maintain that. It’s going to be key in the ATI executive group to have people that understand that.

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How would you assess ATI’s management realignment efforts to get the right executive team in place? What went wrong with the prior team and what should the company do to reset its company culture?

SP: When I retired from the company, the CEO that has resigned was in charge. They had made some key moves in bringing in people in personnel and in finance that you didn’t need to know about physical therapy to be good in that position. I think some of the, perhaps, marketing people, some of the decision-makers didn’t have a background in managing physical therapy. I believe the former CEO was a pharmacist by trade, and, again, very knowledgeable in the medical field, but it’s not physical therapy. I think their moves, especially as they went public, they were looking at corporate leadership that would appeal to investors as they’re business- savvy, but they didn’t have the component that understood the physical therapy component. When I joined ATI, all the way up through the region, those managers all had a PT background that were able to have input and to think the right way about managing physical therapy. Again, I don’t know what’s happened to these people, but I see a lot of them on LinkedIn that are working somewhere else. I’m not sure why they left but I think that’s the component that happens to be missing. You have to feel for the market with bright people running the company, but then again you’ve got to have people that can relate to physical therapy. That’s my opinion of why I think they may have gotten a little bit off track.

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What type of new CEO does ATI need to bring in? What qualifications would you be aiming for? What could ATI change to become a more attractive employer to physical therapists?

SP: As far as upper management, there are physical therapists out there that have less day-to-day practice, that have MBAs and so on and so forth that have the desire to do that. I don’t know how hard ATI tries to recruit people like that but I think that’ll be critical to get that component in there, that will help them. As far as in our area in the south, the business model was to buy up a lot of small clinics, and most of them in the south here are. For an example, in Georgia they’ve opened up seven new clinics, which, other than the clinic that I ran, is really the first foray into Georgia. These are free-standing, north of Atlanta, which is bedroom community for Atlanta, opening out further from town centre than anybody else has. I think that’s a good strategy because they’re in the bedroom communities, and, again, good marketing to the referring staff, referrers, is going to be very important.

Again, in my opinion, I don’t think ATI has a bad reputation, but I’m in some chat rooms or that type of thing, and the new generation is not quite as hard-working as old guys like us. They see it, many of them, as an 08:00-17:00 job and not quite as giving to the company, and, of course, companies have to flex to that and be attractive to that, but one of the comments was, “The leadership doesn’t have any physical therapists in it.” That’s what some of the complaints have been. That’s out there, online, that people can look at that may affect that, attracting people. Again, it’s a good package that they offer and I think as we get out of the pandemic, I think therapists will be coming their way. Plus, none of the physical therapy schools closed, so they’re still producing new grads, which is good and bad as far as experience goes.

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How long could it take to stabilise ATI’s business? How much does seasonality factor in here and how much should we read into one improved quarter of performance?

SP: As we see the pandemic, the seasonality is going to be a bit hit in January and it’s going to be a big hit in August, September. That’s the seasonality of COVID. I hate to put everything on that as far as what’s happening, but it’s a fact, I think. I think you’ll see ATI business will rise up if this next seasonality of COVID is not so bad, and governments don’t lockdown, you’re good. In the south here, in Alabama and Florida, what have you, Mississippi, Texas, they’re not going to fall for that again. You’re going to take safety precautions but you’re not going to lockdown, you’re not going to keep people out. Luckily, ATI is expanding in Texas and across the south, which is the latest area that they’ve really marched to, and Arizona also. That’s going to bode good for them, but, say, in the northeast, where there may be these lockdowns, seasonality will affect that. That remains to be seen. It definitely can affect, but it will affect USPT and Select Medical to some extent also. It affects them all.

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How hard is it to ramp up new physical therapists? Does the attrition ATI has observed in senior physical therapists affect its ability to recruit new staff and bring them up to speed? To what extent do the COVID-19 restrictions reducing first-hand clinical experience increase the ramp-up timelines in training for physical therapy graduates?

SP: Absolutely it does. When you say a new therapist, I assume you mean a new grad. Again, it’s, honestly, a year before a new grad is up to full strength. There are exceptions, obviously, but they’ve been on clinical affiliations, they’ve had some experience, but all of a sudden you’re there, you’re licensed and your first patient walks in. There’s a lot to learn in that first year, so it’s critical that there are mentors, physical therapists in that clinic, whether it’s the clinic manager or a senior physical therapist, to mentor them and to guide them. In my opinion, it is critical. I don’t know how many senior therapists left the company, but that does put some downward pressure on the quality of care to begin with. If there’s somebody just transferring in, they have two or three years’ experience, it’s just a matter of learning the preferences of the referring physicians in the area and learning the software and they’re on the ground running.

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How important is the referral pathway to ATI from individual physicians? The company has a national brand strategy, so do referral sources refer to ATI or a specific physician/clinic?

SP: I think that their overall national idea is you’re referring to ATI, but, in my humble opinion, it is the therapist-physician relationship that is the most important. When I practised for ATI, the physicians didn’t care who I worked for, it was the relationship that I developed with them. They continued to refer just as good as anything. That’s the key. I think in ATI’s marketing, at least what I experienced, I already had the relationships when they bought the practice that I was in previously, so whatever your name is, they’re coming back, but opening up a new clinic and saying, “Everybody come to ATI,” they have to hire therapists that can go out in public and visit physicians offices and redirect referral pathways that physicians are referring somewhere else. “Why are we better, what can we do better for you?” and hopefully the physician will go, “You know what, I’m going to give you guys a try, see how you do with my patients,” and then the practice builds. You build de novo in an area where there’s nothing, either there’s heavy competition or what, you’ve got your work cut out for you. To me, that’s why acquiring smaller practices and keeping people on board is a faster way, and ATI has done that. That’s what they did a lot of in the mid-20-teens here and allowed them to grow.

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If ATI lost or damaged some relationships as a result of their PT attrition problems, how difficult could it be for the company to recover this business? How impactful could this be to future referrals and potential loss of referrals?

SP: I think the medical community all was under stress from all of this and I think there was some mutual understanding that you had to let staff go or you had to furlough them, yet the referrer didn’t have patients to send to them or, if the clinic was locked down, there was nowhere that they could go to see them. I’m sure there was frustration on the physician’s side, if the lockdown didn’t affect some of their referrals, that there was no place for the patient to go. I think there was an understanding of that because we were all in it together, to not coin a phrase. I don’t know whether there’s that much animosity, and with the jump in patients getting elective surgery, I think surgeons are going to be looking, “Where can we get our patients in and get them good care?” I think that’ll go away quickly, that’ll change as things have opened up.

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We’ve discussed that US Physical Therapy and Select Medical have not experienced the same labour issues as ATI. Why wouldn’t ATI’s referral pathways be lost to competition?

SP: Certainly lost opportunity that patients went to other therapy groups and new referral lines developed, so yes, it’s going to take some work to get them back, no doubt about it. The marketing team for ATI, there’s going to be a lot of pressure on them. Generally, how it works, the marketing team goes in and makes contact with a physician, surgeon’s office, and sets up a lunch, or that type of thing, and then probably the director of the clinic, if he has never met the physician before, will come in, they’ll set up an appointment and talk, and these types of things. It’ll be a battle to earn those back. It certainly can be done but it will take a little time to do that. In rural areas as Alabama and Georgia, where the ATI clinics are, there’s not that much competition because ATI (? 34.25) PT in that small town in Alabama and there’s nobody else there. Select isn’t there, USPT isn’t there, so they didn’t lose those referral bases.

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To what extent can ATI substitute physical therapy assistants to fill staffing shortages? How viable is this solution and is there any risk associated with using physical therapy assistants or lesser-trained physical therapy graduates from a patient experience standpoint?

SP: Just a note about physical therapist assistant. That’s an associate degree and generally done at community colleges, and community tech schools will offer these programmes. Generally, PTAs do not travel across the country or move across the country to go to work in other states, other cities, other parts of the country. They are home-town people, I guess I can say, well-trained for what the role of a PTA is, which is predominantly, when the patient has a programme established by the physical therapist, then the PTA can follow that patient, make sure they do the right exercise, they do it correctly. They can administer the modalities of electrical stimulation or that type of thing that does not require a judgment skill, that’s what the physical therapist has been trained to do. The problem is, in our area anyway, there are not enough PTAs in a lot of areas because their community college doesn’t have that programme. That’s what limits it. If you get up into the northeast where there are more PTA programmes, then there’ll be more people to attract to that.

The model of using the PT and two or three PTAs is a solid model, and it has worked for a lot of people and a lot of clinics. Some states limit, licensing boards limit how many PTAs a PT can oversee because way back a PT would have 10 physical therapist assistants that they were supervising and that’s probably pushing it. Two or three PTAs with one PT, I think you can deliver great care with that because the PT is there with them 90% of the time and can answer a patient question that the PTA can’t answer. It’s a solid model and it’s been used successfully over the years. Just for an example, in the clinic I was in it probably could have been manned by a PT and a PTA. The problem is, when the PT is out of the clinic, there’s no one to evaluate new patients, so that would limit access for patients to get in while, let’s say, the PTA was on vacation, or the PT was on vacation. We had two physical therapists in our area, again because we couldn’t attract the PTAs to this rural area, yet we had two PTs that wanted to work and live there. That worked out for us. The PTA model is solid and if it’s run correctly, I don’t think you’ll see a degradation in care. If a patient needs manual therapy which is a hands-on skilled manoeuvre that only a PT can do, the PT is going to do that, and then the PTA will continue with the exercise portion or the electric stim and moist heat portion or ultrasound portion, or whatever it may be.

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What are your expectations for ATI’s growth strategy over the next 12 months? How much of a risk do staffing challenges pose to its clinic expansion efforts? Could you quantify this by reduced number of clinics or percentage decrease of new clinic openings?

SP: That’s difficult, to project that. Again, if health issues stay low, I think ATI will be able to attract people to these jobs, and, again, it may be new grads, it may take a little time to ramp up. ATI is opening in areas, say across Arizona and Texas and Alabama, that there’s not a shortage of physical therapists, so I think they’ll do alright with that. I don’t know how to give you a percentage on that or number of clinics. It appears, from what I see, LinkedIn, we’re opening here, we’re opening there. I think they’re strategically going to areas that are underserved by physical therapy and competition isn’t too strong and it’s a nice place to live. Again, that’s a good strategy for them.

Third Bridge (TB): How are you assessing ATI’s continued ability to acquire smaller mom-and-pop physical therapy shops? The company took a tangible reputational hit during coronavirus. How much could clashes with physician ownership affect the company’s ability to expand?

TABJ: Physician-owned physical therapy, to me, is one of the biggest threats to a company like ATI. There are a number of medical clinics that have been able to pull this off, but I find most of the time they do not do a good job unless there’s some strong leadership, and I’m speaking of the physician-owned practices. It’s convenient for the patient, and that type of a thing. I personally, of course, being a physical therapist, I think it’s a conflict of interests for a physician to refer to their own physical therapy and make money from their referral, but there are state medical boards that do not think this is a problem. The state of New Jersey doesn’t allow it at all. To me, that’s a conflict, I’m not in favour of that. There are some clinics that do that, usually they’re very large ones. Across the board, most orthopaedic clinics don’t have physical therapy in their office or owned physical therapy, but in certain markets, it can be. Another competitor, if you will, would be a large hospital chain, they have outpatient therapy and they have multiple centres in a community. I think they can operate out of the hospitals with separate offices, clinics, up to 35 miles. That’s a pretty big area, and a hospital could blanket an area with five outpatient therapy clinics and have the referral strength to funnel patients into those. That is always another, probably bigger competitor than physician-owned physical therapy. Obviously, those are areas that are tough for ATI to expand in.

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What’s the approximate ratio of ATI’s physical therapists to physical therapy assistants in both headcount and salary? How much revenue do physical therapy assistants generate as a percentage of total revenue for the business?

SP: If the new regulations go through, the PTAs are going to be providing less, that’s for sure, as far as revenue. Let’s just say, now I’m speaking to salaries in the south, let’s say a new grad would start out at USD 65,000 a year, a PTA would probably start out at USD 45,000 a year. Again, salaries would ramp up over a 10- year period that the therapist would be making USD 75,000-80,000, a PTA making USD 55,000-60,000. That would be a typical range in the south. Obviously, in the northeast and on the West Coast it’s a good deal higher. I have a young lady that graduated PT school, she’s from the West Coast, and she’s starting at USD 92,000-a-year salary, and you ask, “How can they pay a new grad that much?” Because reimbursement is so much higher in the state of Washington, for example. It really varies regionally. In the south here, in my area, Medicare pays approximately USD 25-26 per unit. Physical therapy is billed on 15-minute units, so a patient is there for an hour, that’s four units at about USD 25-26, so you’re billing Medicare for about USD 100 of business. It doesn’t matter what you want to charge, that’s what you’re going to get. Physical therapists have no control over what they charge. They charge what the insurance company is going to bring in. In my area, that’s what you would expect to see, and that’s why salaries are lower in this area compared to other parts of the country.

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How flexible can ATI be around where it opens new clinics? How much ability is there to increase exposure to areas with less labour inflation and stay away from areas with higher costs?

SP: If that is their business model or part of their business model, it’s easy enough to do. They put their ear to the ground in certain areas where they want to go. I’m sure that’s what they did in Atlanta. They didn’t go into downtown Atlanta or to the immediate suburbs of Atlanta because USPT is in that area, Select Medical is in that area, but Select Medical isn’t advancing out into these suburbs that are a good distance from downtown. It’s a smart strategy to do that, going where these competitors aren’t. I think I’m seeing that in the towns in Texas where they’re going, I know I saw it in the towns in Alabama, so I think that’s a good strategy. It’s just a matter of having boots on the ground, talking to people in the states, getting with the, for an example, say, the Alabama Physical Therapy Association and making contacts with that group and asking, “Where are the opportunities in this state if I wanted to open a clinic?” They can gather information quite easily, so I think you’ll see them open up even more in the southern United States.

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Are any other regions other than the southeast US you would highlight as attractive for expansion? Which geographies might be favourable around patient population, reimbursement or less exposure to labour inflation headwinds?

SP: Certainly the Midwest. The company originated in Chicago and, although they’re not the biggest provider, I believe Athletico was the biggest provider in the Chicago area, started in Chicago. The CEO, I forget his name, Greg Steil, whatever his name, there was a company when I was in Pennsylvania, Pro Physical Therapy, which was the first company that ATI basically bought or merged with and got their start. That band across the country from Chicago to the northeast, and I don’t mean Maine and Vermont, that type of thing, but there is so much competition for physical therapy there. Of course, there are so many people there. You take the northeast, what percentage of the entire US population is there, so there are a lot of patients to be seen there but a lot of competition and obviously high CAC costs and labour costs and those types of things. ATI, for example, is in Tennessee, in south, or, excuse me, in the east Tennessee area, they bought up clinics along that eastern border, but they have not had a foray into Nashville, which, again, is pretty loaded with the other competitors. Memphis, to me that’s an area, and then are these good mid-sized towns across the state of Tennessee that hopefully they are eyeballing to open, again if investors can continue to fuel that. Arkansas, for example, not so many of the competitors there. Oklahoma. There’s plenty of place to expand in those types of areas.

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How would you compare the value of the ATI model vs a franchise/JV model? Could you discuss the strengths and weaknesses of each strategy? Is one favourable and, if so, why?

SP: It really depends on what, I’ll just say, the physical therapist might want. If you want to do a franchise business, then that means, if you’ve got a Chick-fil-A franchise, your behind is going to be in the store or stores every day and it is going to be priority in your life to see that succeed. When you go with a model like ATI or USPT or Select Medical, you’re hiring employees to have, you hope, that will and desire to work more than 08:00-17:00, and I don’t mean seeing patients, it means getting out in the community and making an impact. Somebody owning a franchise, now USPT, what they did was they basically bought practices and kept the leadership and everything there so basically the leadership ran the franchise. It was their franchise but USPT backed them up with billing and all those things. That person is going to work a lot harder than Joe Blow coming in to be a clinic director. They’re not going to have the same drive to succeed. There’s the difference. Most, I won’t say most physical therapists, many physical therapists don’t want that environment, they didn’t become a physical therapist to be a business person at all. It appeals to them that they work 08:00-17:00 and they don’t have to go do anything else for their company that they work for. That, to me, are the strengths and the weaknesses, in that there’s just a little better work ethic when you have your chips in the fire right there.

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Could you juxtapose ATI’s competitiveness versus Select Medical, US Physical Therapy and others? How does ATI compare in both reputation and geographic footprint? Do you expect any near term market share shifts?

SP: When ATI buys established clinics, they are operating just as Select Medical was or is operating. When they moved into South Carolina, patient referrals, patient numbers, everything is solid in there and in place. If you go into an area where nobody knows you, then it’s a process to develop that patient load. ATI has been doing a little bit of both, I know their acquisitions of clinics have dropped significantly and de novo is the way they want to go. I think it’s a tougher way to do that, but there are only so many small practices to buy. They’re a mixture in that so it’s hard to really pinpoint it.

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Do you think some of the smaller operators enjoy an advantage in service quality or patient relationships?

SP: It all depends on the people you hire. ATI has hired many good people that have that and develop a reputation there. It’s hard for a referring physician to know who works in your clinic. It builds over time as you see patients and they say, “They do a good job.” Again, yes, a smaller practice in a smaller town area where the therapist will see the doc at the grocery store or maybe on the golf course or at their church, smaller operations and smaller areas, those relationships can develop much more quickly than a new therapist moves to Atlanta and goes to work, will they ever meet their referring doctors? Doctors are busy, they don’t want people coming in to bother on occasions, unless maybe somebody buys them lunch and they get a chance to meet. Yes, there’s a difference in that, and you can tell, I’m a small-town kind of guy and that’s what I base my success on in practice. In the larger cities, it’s a different world and, again, the marketing team is going to have to play a bigger role there.

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How much market overlap is there with Athletico specifically in the Midwest and Upstream Rehab in the southeast? Are any of these players gaining traction at ATI’s expense? How do you assess the competitive dynamics here?

SP: I have not seen or heard any of that in the literature, in any of the financial ratings. I have not seen what the shift is, though I’m sure if you gained better referrals, you probably will brag about it. I have not heard Athletico or Select Medical, Physio Associates or Champion, or any of these, really brag about that. Certainly ATI isn’t going to say, “We lost a bunch of market share.” I don’t know whether that data is only accessible to ATI leadership, but that’s (talking over each other 57.07) on the market.

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What’s your 12-18-month outlook for ATI Physical Therapy, perhaps highlighting how reimbursement may shift and the company’s ability to ameliorate some of the labour issues it experienced in 2021?

SP: If they called me and listened to me on my advice, I think it’ll be real quick, but I don’t think they will. I think they had the ability to do that. I think many of the clinic managers, obviously, where they acquired clinics, are still there, and so I think their core is real solid on the treatment end of things. I have a, I would not say hold, I don’t know whether I’d go full green light, but I think they will rebound and work through this labour issue, labour shortages. It will work. Physical therapists seem to change jobs every three years, something like that I think is the average. I’m positive that this will go forward, but I’m not giving it an A-plus rating, for sure. If C is mediocre, maybe a B chance in all of that, from just the things that I see.

If I might add just a global picture of physical therapy, really the looming issue that will come in the entire profession is the cost of physical therapy school, which right now, as reported by the APTA, is an average of USD 120,000 debt for a three-year programme at the time of graduation. With reimbursement not increasing for sure, that means salaries can go but so high, soon there’s going to be a point where people aren’t going to be able to afford to go to physical therapy school and there may be a shortage of physical therapists. I’m predicting out 5-10 years, as a trend that I see happening because there’s no pressure on the universities to keep prices down, keep tuition down. They just keep raising them and raising them. Obviously, you come from a wealthy family, you don’t have that debt, but not everybody in physical therapy school has that advantage. To me, that’s a global problem for physical therapy, which obviously will put pressure on all the companies that provide physical therapy.

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