Due diligence on a physiotherapy clinic

A physiotherapy clinic’s financial statements can look clean and still hide the questions that actually determine whether the revenue survives a change of ownership. Because so much of a clinic’s income runs through third-party payers rather than a simple point-of-sale transaction, due diligence has to go past the top line and into the payer-by-payer detail, the associate contracts, the referral relationships and the billing infrastructure that keeps the money flowing — the checks that are specific to a physiotherapy clinic rather than to any small business generally. None of these checks are exotic on their own, but skipping any one of them tends to be exactly where a buyer discovers, weeks after closing, that the clinic they are now running is not quite the clinic they thought they bought.

Start with a verified payer-mix breakdown

Ask for revenue broken down by extended health benefits, motor-vehicle-accident billing, workers’ compensation billing and private pay, and cross-check that breakdown against actual insurer and board remittance summaries rather than accepting the seller’s own internal report. A clinic that describes itself as diversified but cannot produce remittance data to back that up is asking you to take the payer mix, and the risk profile behind it, on faith.

Read the MVA and WCB claims history carefully

Request the clinic’s history of motor-vehicle-accident and workers’ compensation claims, not just the revenue those claims produced, and look specifically for adjudication disputes, denied claims or clawback demands. A pattern of disputes can point to billing or documentation practices that a new owner would inherit along with the revenue, and insurers and provincial boards take billing accuracy seriously — a pattern that looks unusual in the numbers is worth investigating before you close, not after a clawback letter arrives.

Associate agreements and the patient-following risk

Review every associate physiotherapist’s contract for its non-solicitation and non-compete terms, and find out how long each associate has been with the clinic and whether they know a sale is underway. An associate who is unhappy, under-compensated relative to their production, or simply exploring other options can leave shortly after closing and take a meaningful share of their treating patients with them — a risk invisible in the financial statements you have been shown, and one worth pricing into the deal rather than discovering after you own it. Have a lawyer confirm whether the existing non-compete and non-solicitation language would actually hold up if tested, since a covenant that reads well but was never drafted with enforceability against a departing associate in mind offers less protection than the paperwork suggests.

Equipment condition and clinic-specific software

Physiotherapy equipment — treatment tables, modalities, exercise equipment — is not usually a large line item, but confirm its age and condition anyway, since a wave of near-term replacement costs changes the economics of the deal even where the clinic itself is otherwise strong. Separately, ask the clinic’s practice-management and billing software vendor, in writing, whether patient records, billing history and any direct-billing configurations can actually export into the system you intend to run, rather than accepting a verbal assurance that migration is usually straightforward. A software transition that turns out to be incomplete or non-exportable is the kind of problem that is cheap to catch before closing and expensive to discover after.

Direct-billing registrations don’t automatically transfer

Confirm which of the clinic’s direct-billing arrangements with extended-health insurers are tied to the clinic itself and which are tied to the individual treating clinicians. Where an arrangement is clinician-specific, find out what re-registration under new ownership actually involves and how long it realistically takes, because a gap in direct-billing capability after closing shows up immediately as slower cash flow and frustrated patients. Ask the seller for a full list of every insurer the clinic bills directly, rather than the handful they mention off the top of their head, since an incomplete list at this stage tends to surface as a surprise gap right after closing.

Quantify referral concentration

Ask for a breakdown of new-patient volume by referral source over at least the past two years, and calculate what share comes from any single physician, surgeon or specialist. A referral relationship this concentrated is a real asset while the relationship holds, and a real risk the moment the referring party stops sending patients — which can happen simply because they no longer recognize who is running the clinic. Ask whether the seller can realistically introduce you to key referral sources before closing.

What buyers should ask to see

• Two full years of payer remittance summaries by category, not just internal revenue reports
• Associate physiotherapist contracts, including non-compete and non-solicitation clauses
• Direct-billing provider status by insurer, and which registrations are clinic- versus clinician-specific
• MVA and WCB claims and dispute history, including any clawback demands
• A referral-source breakdown by new-patient volume for the last two years
• Written confirmation from the practice-management software vendor on whether records will export cleanly to your own system