Hospital Outpatient Department (HOPD) Contracts: What Every Outpatient PT Practice Owner Needs to Know
You built your outpatient physical therapy practice on clinical excellence, patient relationships, and the grind of running a business without a hospital's balance sheet behind you. Now a hospital system is knocking — or maybe you're the one asking the question: could an HOPD arrangement change the economics of my practice? The answer is nuanced, and the stakes are high. This guide strips out the noise and speaks directly to the realities of running an outpatient PT clinic — your payer mix, your visit volumes, your therapist team, your referral sources, and ultimately your exit options.
A Hospital Outpatient Department (HOPD) — also called a provider-based department (PBD) — is a clinic that CMS recognizes as part of a hospital for billing purposes. When your outpatient PT practice is designated an HOPD, it bills under the hospital's Medicare provider agreement rather than as an independent clinic under your own Medicare number.
From the outside, nothing visible changes. Your patients walk in through the same door, see the same therapists, do the same exercises. But from CMS's perspective, they are now in a hospital department — and that distinction changes everything about how the visit is paid.
For outpatient PT and rehab specifically, this matters because physical therapy is one of the highest-volume outpatient services that hospitals seek to affiliate with. Hospitals want PT volume flowing through their system for three reasons: direct revenue from the facility fee, downstream surgical and procedural referrals that PT generates, and quality metrics tied to post-acute care outcomes. That makes PT practices attractive partners — which gives well-run private practices more negotiating leverage than you might assume.
The Fundamental Shift
As an independent PT clinic, you bill Medicare under the Physician Fee Schedule (PFS) — one claim, one payment. As an HOPD, two claims are submitted for the same visit: a facility fee billed by the hospital under the Outpatient Prospective Payment System (OPPS), and a professional fee billed for the therapist's services. However, there is a critical nuance for PT practices specifically: Medicare treats outpatient physical therapy as an "inherently site-neutral" service — meaning CMS pays PT CPT codes at PFS-equivalent rates regardless of whether the clinic is an HOPD or a freestanding practice. The HOPD facility fee premium that exists for many other services does not apply to PT therapy codes. The primary financial rationale for a PT-focused HOPD arrangement rests on commercial payer rates, referral access, and operational advantages — not on a Medicare facility fee uplift on therapy codes.
Here is a concrete look at how the HOPD billing structure plays out for a typical outpatient PT visit — and what it means for your revenue per encounter.
How Medicare Actually Pays PT at an HOPD — And Why It's Not What You Expect
This is where most HOPD discussions for PT practices get it wrong. PT therapy CPT codes (97110, 97112, 97140, 97530, etc.) are classified by Medicare as "inherently site-neutral" services — meaning CMS pays them at Physician Fee Schedule rates regardless of whether the clinic is a freestanding private practice, a grandfathered HOPD, or a new off-campus department. There is no OPPS facility fee premium on these codes at any HOPD designation.
In practical billing terms, an HOPD treating Medicare PT patients still submits two claims — the UB-04 facility claim and the CMS-1500 professional claim. But the facility component of therapy services is paid by Medicare at PFS-equivalent rates, not at the higher OPPS APC rates that generate the premium for other HOPD services (like drug administration, surgical procedures, or imaging). The combined Medicare payment to the HOPD for PT services is approximately equivalent to what an independent clinic receives under the PFS — not materially higher.
What this means for your financial model: If a hospital or advisor presents a pro forma showing large Medicare revenue uplift from HOPD designation based on PT visit volume, ask them specifically what Medicare pays for outpatient PT codes at the HOPD vs. a freestanding clinic. The honest answer is: approximately the same. The Medicare story for PT-focused HOPDs is about billing infrastructure and compliance requirements — not about a facility fee premium.
Note: There is still an important patient cost-sharing implication. Medicare patients at an HOPD may owe dual cost-sharing (on the facility and professional components), resulting in higher out-of-pocket costs than at a freestanding clinic — even though total Medicare payment is similar. This requires clear upfront patient communication and affects plan-of-care completion rates.
What happens to the KX modifier threshold under HOPD status? This is a question PT practice owners frequently ask. The therapy cap was replaced by the KX modifier threshold under the Bipartisan Budget Act of 2018. For 2026, that threshold is $2,480 for combined PT and SLP services (up from $2,410 in 2025). Because PT codes are paid at PFS-equivalent rates regardless of setting, the KX modifier threshold framework applies similarly at an HOPD as at a freestanding clinic — this is not a material distinction between settings for outpatient therapy billing purposes.
What about documentation? HOPD billing requires documentation that satisfies both the professional service record and the hospital's conditions of participation. CMS expects therapy documentation at an HOPD to meet the same standards as any hospital department — which in practice means tighter supervision, co-signature, and timeliness requirements than many independent PT clinics maintain informally.
The following benefits are most relevant to outpatient PT and rehabilitation practices. Not every benefit applies to every market or practice structure — evaluate each against your specific situation.
Advantages for the PT Practice Owner
- Therapy Threshold and Documentation Flexibility: Physical therapy CPT codes are classified by Medicare as inherently site-neutral, meaning the Medicare payment for PT-specific codes is approximately equivalent at an HOPD and a freestanding clinic. The primary Medicare-related advantage of HOPD status for PT is not a facility fee premium but rather: access to the hospital's Medicare enrollment infrastructure, potentially simplified billing for complex cases, and the fact that HOPD patients may be more likely to have supplemental coverage that reduces the cost-sharing friction associated with dual-component billing. The meaningful financial upside for PT practices comes from commercial payer rates and referral access — not Medicare reimbursement on therapy codes.
- Access to Orthopedic and Post-Surgical Referrals: Hospital-employed orthopedic surgeons, spine surgeons, and sports medicine physicians are among the richest referral sources for outpatient PT. These physicians rarely refer outside the hospital system. HOPD affiliation can unlock referral streams that are structurally inaccessible to independent clinics — this is often the most durable long-term advantage.
- Relief from Billing Complexity and Payer Contracting: Independent PT clinics spend enormous resources negotiating commercial contracts, managing denials, and credentialing. An HOPD arrangement shifts much of this to the hospital system, which has dedicated revenue cycle infrastructure and far greater payer leverage than any individual practice.
- Commercial Rate Improvements in Strong Hospital Markets: In markets where the hospital system holds significant commercial payer negotiating power, HOPD-affiliated PT clinics can achieve commercial rates well above what an independent clinic could negotiate alone. In hospital-dominated markets, this can exceed the Medicare uplift in absolute dollar terms.
- Capital for Growth and Facility Upgrades: Independent PT practices are often capital-constrained. Hospital partnerships can fund new equipment (IASTM tools, anti-gravity treadmills, aquatic therapy facilities), facility renovations, and additional clinic locations that would otherwise require years of retained earnings to build.
- Therapist Recruitment and Retention: Hospital employment or affiliation provides therapists access to competitive benefits packages, loan forgiveness programs, and career development pathways. In a tight PT labor market, this is a meaningful recruiting tool — particularly for new graduates carrying significant student loan debt.
- Defensible Position Against PE-Backed Competitors: If your market is being aggressively consolidated by PE-backed PT chains, HOPD affiliation can create a referral and reimbursement moat that standalone clinics cannot replicate. Hospital loyalty programs, system-level marketing, and physician referral relationships are durable competitive advantages.
The risks below are specific to how outpatient PT practices actually operate — staffing models, patient relationships, productivity metrics, and the clinical culture that made your practice successful in the first place.
Risks for the PT Practice Owner
- Loss of Clinical and Scheduling Autonomy: Hospital systems impose standardized scheduling templates, visit duration norms, productivity quotas (often measured in units per day), and documentation workflows that differ materially from how efficient private PT practices operate. Your therapists may face productivity metrics that conflict with the quality-focused culture you built — and turnover can follow.
- Patient Attrition from Cost-Sharing Shock: Medicare patients at your HOPD will owe co-insurance on both the facility and the professional fee. A patient paying $0 cost-sharing previously (with a supplemental plan that covers PFS co-insurance) may now owe $20–40 per visit in facility cost-sharing. This surprises and frustrates patients, drives attrition, and can damage the physician referral relationships that depend on your patients completing their full plan of care.
- PTA Supervision — Know How the Rules Actually Shift: This is frequently misunderstood. In a private practice setting (billing on a CMS-1500), Medicare historically required direct supervision of PTAs — meaning the PT had to be physically present in the office suite. At an HOPD (billing on a UB-04), general supervision applies — the PT must be available but does not need to be on premises. The 2025 Medicare final rule has now aligned private practice supervision with general supervision as well, reducing this distinction going forward. The net effect for most practices transitioning to HOPD will be neutral-to-favorable on PTA supervision flexibility. However, state practice acts may impose more stringent requirements than either Medicare standard — verify your state's rules. The more significant staffing issue at HOPDs is typically hospital-imposed productivity quotas and scheduling templates, not CMS supervision standards.
- Documentation Burden Increases Substantially: HOPD billing requires hospital-compliant documentation — co-signatures, tighter timeliness requirements, structured note formats, and integration with the hospital EMR. If your practice runs on a standalone PT-specific EMR (WebPT, Clinicient, etc.), the transition to the hospital system (Epic, Cerner, Meditech) is operationally disruptive and can reduce therapist productivity for 3–6 months during go-live.
- You May Not Keep Most of the Upside: The facility fee flows to the hospital — not to you — unless your agreement explicitly carves out a meaningful revenue share. Many practice owners are surprised to find that after employment salaries, overhead allocations, and the hospital's margin, their actual cash compensation in an HOPD arrangement is similar to or lower than what they were earning as an independent practice owner. The incremental revenue uplift often primarily benefits the hospital system.
- Stark Law and Anti-Kickback Exposure: These are distinct but often overlapping concerns. The Stark Law (§ 1877) prohibits physicians from referring Medicare patients for "designated health services" (DHS) to entities in which the physician has a financial relationship — physical therapy is a DHS under Stark, which means physician financial arrangements with an HOPD that receives their PT referrals require a Stark exception. The Anti-Kickback Statute (AKS) applies more broadly — to any compensation arrangement that could induce or reward referrals to a federal program, regardless of whether a physician is involved. Above-market compensation paid by the hospital to the practice owner, or any arrangement that rewards referral volume, requires careful AKS analysis. The two laws operate independently; compliance with one does not guarantee compliance with the other. Qualified healthcare counsel with expertise in both is essential before any compensation structure is finalized.
- Your Independent Practice Value May Decline Mid-Process: Once you begin hospital affiliation discussions, word travels. Referral sources may begin routing to the hospital network. Staff may become uncertain about their future. If negotiations fail or take longer than expected, your practice can be in a weakened position — with referrals eroded and staff anxious — before any deal is consummated. This risk is real and underappreciated.
- Exit Options Narrow Significantly: An HOPD designation is largely incompatible with a PE roll-up sale. PE buyers purchase practices to run them under their own Medicare numbers and operational model. If you later decide hospital affiliation is not the right path, unwinding HOPD status requires regulatory re-designation, payer contract renegotiation, and potential operational disruption. The exit risk is not theoretical — many practice owners have found themselves structurally locked in.
For many outpatient PT practices evaluating an HOPD arrangement today, the commercial payer story has become the primary financial rationale — particularly because Medicare's site-neutral payment reform has eroded or eliminated the OPPS premium for most new off-campus HOPD designations. Understanding exactly where commercial upside exists, how large it can be, and where it is rapidly disappearing is essential before building any financial model.
The Commercial Rate Gap for PT Services: What the Data Shows
Research on actual commercial claim prices for outpatient PT services confirms a meaningful HOPD premium in many markets — but only relative to what independent clinics actually collect, which is less than many practice owners assume. A National Institute for Health Care Reform study using 2011 commercial claims data found that commercial prices per unit of therapeutic exercise (97110) were approximately 41% higher in hospital outpatient departments than in community-based clinics, and commercial prices per unit of manual therapy (97140) were approximately 64% higher. These reflect actual contracted commercial rates — but from a specific dataset (autoworker plans) over a decade ago, and should be read as directionally indicative, not a precise current benchmark.
The more important starting point is what independent PT practices actually collect from commercial payers. The reality is less favorable than many assume. Commercial payers routinely structure PT contracts as a percentage of the Medicare Physician Fee Schedule — and for most private practices without significant negotiating leverage, that percentage is often at or near 100% of Medicare, not materially above it. APTA Private Practice identifies 110% of Medicare as a target rate for contract negotiations, reflecting that many practices are below that threshold, not above it. The 2026 Medicare non-facility rate for 97110 is approximately $29.50/unit; at 100–110% of Medicare, a 4-unit commercial PT visit at an independent clinic yields roughly $115–$130 per visit — not dramatically more than Medicare.
Workers' compensation, auto injury, and some regional commercial plans that pay fixed fee schedules above Medicare are meaningful exceptions. But the blended commercial book for a typical private PT practice is often closer to Medicare rates than owners expect. StrataPT's aggregate benchmark across all payers shows a blended average reimbursement per visit of approximately $95–$115 — a figure that includes both Medicare and commercial visits and reflects the real-world collection environment.
The independent clinic range above reflects practices at or near Medicare rate levels — the realistic baseline for most private PT practices. Well-positioned practices with strong negotiating leverage may achieve 120–150% of Medicare from some payers, which would narrow the HOPD differential. Workers' comp and auto injury are excluded; those payers often pay significantly above Medicare regardless of HOPD status. The HOPD range assumes the hospital's commercial contracts meaningfully exceed PFS rates — verify payer by payer before building projections.
Unlike Medicare, commercial payers do not have a uniform OPPS rate schedule — they negotiate individually with each hospital system. This means the commercial uplift available through HOPD affiliation is entirely a function of how well your affiliated hospital has negotiated with each payer in your market. In markets where a hospital system has significant leverage — a dominant market share, a must-have network status, or unique service lines — commercial rates for hospital-affiliated outpatient services can be dramatically higher than what an independent PT clinic could ever achieve. In fragmented markets with strong commercial payer pushback, the differential may be narrow or nonexistent.
Why Hospitals Hold Leverage That You Never Will
An independent outpatient PT clinic is, from a commercial payer's perspective, largely replaceable. A PT-specific network has thousands of potential providers. But a hospital system — particularly one with dominant inpatient market share, a major trauma center, or a monopoly on certain specialty services — is not easily excluded from a commercial network. Payers need the hospital in their network, and hospital contracts typically cover all affiliated services, including outpatient PT. This bundle effect is the fundamental source of commercial leverage that flows to HOPD-affiliated practices: you are riding the hospital's non-excludability into better rates your practice could never achieve independently.
But the commercial HOPD advantage is under active pressure from payers — and the landscape shifted materially in 2025.
Effective October 1, 2025, Cigna and its partner American Specialty Health (ASH) implemented a formal site-of-care review policy specifically targeting outpatient PT and OT services delivered in hospital outpatient departments. Under this policy, HOPDs must obtain prior authorization for outpatient PT following the initial evaluation, and Cigna will deny HOPD-level payment when freestanding clinic alternatives are available nearby and no clinical justification exists for the higher-cost hospital setting. This is not a soft guidance — it is a structured prior authorization requirement with a peer review process, applicable to both in-network and out-of-network HOPDs.
Cigna's policy is the clearest and most operationally significant commercial site-of-care restriction applied specifically to PT in an HOPD setting to date — but it is unlikely to be the last. The policy's structure (authorization, medical necessity, geographic availability of freestanding alternatives) closely mirrors the framework CMS has been considering for Medicare expansion. Expect other major commercial payers to evaluate similar approaches over the next 12–24 months.
The practical takeaway for PT practice owners: the commercial HOPD premium is real in the right markets, but it requires a payer-by-payer analysis — not a blanket assumption. Before signing any affiliation agreement, request the hospital's actual contracted commercial rates for outpatient PT (CPT 97110, 97140, 97530, 97112, 97162) at its existing HOPD locations from each of your top five commercial payers. Compare those rates to your current contracted rates. That delta, multiplied by your annual commercial visit volume, is your true commercial upside — and it should be modeled conservatively, factoring in the growing likelihood that one or more of those payers follows Cigna's lead on site-of-care restrictions within your contract term.
One more operational reality: even where the commercial premium is intact, Cigna's site-of-care policy illustrates a new administrative burden that HOPDs must absorb — prior authorization processes that freestanding clinics are not subject to for the same services. If your affiliated hospital's billing team is responsible for managing these authorizations, clarify that in writing before the deal closes. If the burden falls on your clinical or administrative staff, model the labor cost. Authorization delays also mean delayed starts to care, which can drive patient attrition in PT where early intervention matters clinically.
This section covers two distinct but related issues that PT practice owners frequently conflate. Understanding the difference is essential before building any financial model around an HOPD arrangement.
Issue 1 — PT therapy codes are inherently site-neutral, always. Physical therapy CPT codes (97110, 97112, 97140, 97530, and others) are classified by Medicare as "inherently site-neutral" services. This means Medicare pays them at Physician Fee Schedule rates regardless of whether the clinic is an HOPD or a freestanding practice — grandfathered or not, on-campus or off-campus. There is no OPPS facility fee premium on PT therapy codes at any HOPD. This is not a new development; it has always been the case. The financial case for a PT-focused HOPD arrangement has therefore never been primarily about Medicare — it is about commercial payers, referral access, and operational support.
Issue 2 — For non-PT services, the site-neutral debate is more nuanced — but increasingly unfavorable. The Bipartisan Budget Act of 2015 introduced site-neutral payment for non-PT services at new off-campus HOPDs, paying them at PFS rates rather than OPPS rates. Only off-campus HOPDs billing Medicare before November 2, 2015 were "grandfathered" to receive OPPS rates on non-PT services. For PT practices, this distinction matters primarily if the hospital is proposing a joint arrangement that includes non-PT service lines. The 2026 OPPS final rule extended site-neutral payment to drug administration services even at grandfathered sites, representing an ongoing erosion of the grandfathered advantage.
There is one setting exception: clinics on the main campus of the hospital — defined under 42 CFR § 413.65 as within 250 yards of the main buildings — are generally exempt from off-campus site-neutral rules. But this exemption does not affect the inherent site-neutrality of PT therapy codes, which applies in all settings.
The Right Question to Ask Any Hospital
If a hospital approaches you about an HOPD arrangement and presents a financial case built on Medicare revenue uplift from PT visit volume, ask them directly: which specific CPT codes will receive a higher Medicare payment at the HOPD than at my current independent clinic? The honest answer for PT therapy codes is: none. PT is inherently site-neutral under Medicare. The commercial payer story may be valid and significant — hospitals with strong commercial leverage can often negotiate materially better rates for affiliated outpatient PT sites — but that is a fundamentally different analysis than a Medicare facility fee premium narrative. Insist on a payer-by-payer breakdown of commercial rate differentials, verified against the hospital's actual existing HOPD contracts, before any financial projections are accepted.
(97110, 97112, 97140, 97530, etc.)
(non-PT services, billing Medicare as of Nov. 2, 2015)
(established after Nov. 2, 2015)
(within 250 yards of main hospital)
(UHC, Cigna, some BCBS plans)
(many regional and national plans)
Understanding what drives hospital interest will help you position your practice more effectively — and identify quickly whether a particular hospital is a genuine strategic partner or simply looking to acquire PT volume at a low price.
The path to an HOPD affiliation is not a simple negotiation — it is a multi-stage process involving regulatory qualification, organizational approval, and careful financial modeling. Here is a realistic roadmap.
Run the Site-Neutral Analysis First — Before Any Hospital Conversation
Engage a healthcare attorney and a financial advisor to determine, for your specific proposed structure, whether Medicare would pay OPPS rates or site-neutral rates. If the answer is site-neutral, recalibrate your entire financial case before proceeding. The commercial payer story may still support the deal, but it requires a completely different analysis. Do not rely on the hospital to give you an unbiased answer to this question.
Prepare Your Practice Package Before You Approach Any Hospital
Three years of P&Ls, payer mix analysis by CPT code, weekly visit volume trends, patient demographic data, therapist roster with credentials, referral source map showing referring physicians and volume, and your current commercial contract rates. The hospital will use their information advantage against you if you don't have your own numbers ready. Know your EBITDA, your revenue per visit by payer, and what your practice would be worth in a PE transaction before you engage with any hospital offer.
Identify the Right Entry Point Within the Hospital
Cold outreach to hospital administrators rarely succeeds. The most productive entry points for PT practices are: (a) hospital-employed orthopedic surgeons or physiatrists who already refer to your clinic and have internal advocacy credibility, (b) the VP of Outpatient Services, Service Line Director for Musculoskeletal or Rehab Services, or VP of Business Development — not the CFO, who will default to acquisition cost minimization. An M&A advisor with existing hospital relationships can often access these conversations more efficiently than a cold approach.
Model the Commercial Payer Impact Payer by Payer
Pull your payer contract rates today. Then request, as part of due diligence, the hospital's contracted rates for outpatient PT at its existing HOPD locations for the same payers. For each payer, determine: does that payer honor HOPD rates, or have they adopted site-neutral policies? Build a realistic projection of revenue per visit post-affiliation. The delta between that number and your current revenue per visit is your true upside — before factoring in any revenue sharing you would give back to the hospital.
Negotiate Revenue Sharing, Not Just Salary
If you become a hospital employee as part of the arrangement, your compensation will be set at "fair market value" — a number the hospital's valuation firm calculates in a way that serves the hospital's interests. The key negotiation is not just the base salary — it is whether you participate in the incremental revenue generated by HOPD billing premium above what your practice generates as an independent clinic. Push for explicit revenue sharing language tied to the HOPD facility fee, not just productivity-based compensation. Insist on an independent FMV opinion from a firm you select, not one the hospital selects for you.
Address Your Therapist Team Before Signing Anything
Your therapists are your most critical asset — and they will have questions the moment word leaks. Address key staff retention proactively: negotiate employment terms for your clinical staff as part of the deal, not as an afterthought. Hospital employment may appeal to some therapists (benefits, loan forgiveness) and alienate others (productivity quotas, bureaucracy). Losing two or three senior PTAs or DPTs during a transition can wipe out a year of HOPD revenue upside.
Negotiate Protective Termination and Non-Compete Terms
Hospital agreements are drafted by hospital counsel for the hospital's benefit. The termination provisions — what happens to your practice, your patients, and your therapists if the arrangement ends — are critical. Push for: adequate notice periods (minimum 180 days), right to compete after termination (or narrow geographic scope on any non-compete), patient records portability, and clear language on what happens to your lease and physical plant. Assume the relationship will end at some point. Structure the exit before you sign the entry.
Implement Compliance Infrastructure Before the First HOPD Claim
Provider-based patient notices must be delivered and documented before every HOPD encounter. Dual billing workflows (UB-04 facility + CMS-1500 professional) must be tested before go-live. Documentation standards must be trained for all clinical staff. EMR configuration must be validated for HOPD-compliant coding. Billing errors in the first 90 days generate the highest audit risk and can trigger repayment obligations that dwarf early revenue gains. Do not rush go-live under pressure from the hospital's integration timeline.
Before you sign any HOPD affiliation or employment agreement, ensure each item below has been addressed with qualified legal and financial advisors. This is a practitioner-level framework, not an exhaustive legal checklist.
Due Diligence & Negotiation Items
- PT Inherent Site-Neutrality Confirmed: Confirmed with healthcare legal counsel that PT-specific therapy CPT codes will be paid at PFS-equivalent rates at the proposed HOPD regardless of grandfathered status — because PT is inherently site-neutral under Medicare. Shifted the financial analysis focus to commercial payer rate differentials, not Medicare facility fee uplift.
- Commercial Payer Site-Neutral Audit: Reviewed each of your top 5 commercial payer contracts to determine whether HOPD rates apply or whether that payer has adopted its own site-neutral policy for outpatient PT.
- Independent Revenue Projection: Built a visit-level, payer-by-payer model of projected revenue per visit post-affiliation — not using the hospital's projections, but your own independently verified numbers.
- EBITDA Baseline and Comparator: Know what your practice is worth to a PE buyer today, so you can rationally compare the hospital deal against the alternative. Do not negotiate with a hospital without knowing your BATNA.
- Facility Fee Revenue Share: Negotiated explicit language in the agreement specifying what percentage of the HOPD facility fee flows to you — whether through base salary, productivity bonus, or revenue sharing.
- Fair Market Value Opinion: Obtained an independent FMV opinion on therapist compensation and on any practice acquisition price — from a firm you selected, not one the hospital selected.
- Therapist Employment Terms: Secured written employment terms for all key clinical staff before the deal closes, including base compensation, benefits, non-compete scope, and performance expectations.
- PT/PTA Supervision Model: Confirmed how the hospital's clinical supervision requirements will affect your staffing ratio model and what the impact is on therapist productivity and labor cost per visit.
- EMR Transition Plan: Negotiated a realistic go-live timeline for EMR transition with an adequate parallel-run period, training budget, and productivity ramp accommodation.
- Termination Rights and Notice Period: Secured a minimum 180-day termination notice period and clarity on what happens to your patient panel, your lease, and your therapists if the agreement ends.
- Non-Compete Scope Review: Had your attorney analyze the geographic scope, duration, and enforceability of any non-compete or non-solicitation provision under your state's law.
- Patient Notice Protocol: Established a written HOPD patient notice process that meets CMS requirements and is operationalized before the first HOPD claim is submitted.
- Stark and AKS Review: Had qualified healthcare counsel review the compensation structure and referral relationships for Stark Law and Anti-Kickback Statute compliance, including any PT referrals from hospital-employed physicians to the affiliated HOPD.
- Future Acquisition Rights: If this arrangement is intended to lead to a full practice acquisition, negotiated the valuation methodology (EBITDA multiple, trailing period, exclusions) in the affiliation agreement — not after the fact.
One of the most common errors PT practice owners make when approached by a hospital is treating the conversation as binary: either pursue full HOPD affiliation or walk away. In reality, hospital-practice relationships exist on a spectrum, and understanding where HOPD sits on that spectrum helps you evaluate whether it is the right structure for your situation — or whether a lighter arrangement would achieve your goals with fewer strings attached.
Management Services Agreement (MSA)
The hospital provides administrative, billing, or operational services to your practice in exchange for a management fee, but your practice remains independently owned and operated under your own Medicare number. No provider-based designation. No HOPD billing. You retain ownership and exit optionality. Useful for practices that want hospital infrastructure support without surrendering autonomy or foreclosing a future PE sale.
Co-Branding / Referral Development Agreement
A formal referral relationship, sometimes with co-branding (e.g., "XYZ Physical Therapy, an affiliate of General Hospital"), but no billing integration. The hospital promotes your clinic to its employed physicians; you refer appropriate patients into the hospital system. No regulatory complexity, no provider-based requirements, no impact on your Medicare billing. The weakest form of affiliation but also the least risky and most reversible.
Employment Without HOPD Designation
The hospital acquires your practice and employs your therapists, but operates the clinic under its own employed provider billing model — not as an HOPD. This is increasingly common where site-neutral reform has eliminated the Medicare HOPD premium. The hospital captures operational efficiency and referral alignment; you receive a practice acquisition payment. The clinic does not bill as an HOPD and avoids the associated compliance burden.
Full Provider-Based HOPD Designation
The clinic is formally designated as a hospital outpatient department under CMS rules. Dual billing (UB-04 + CMS-1500) applies. The practice operates under the hospital's Medicare provider agreement. This is the most complex, most regulated, and most financially significant structure — but only where the reimbursement premium is preserved (grandfathered sites or on-campus locations) and the commercial payer environment supports HOPD rates. This document's primary focus.
Choose the Structure That Matches the Economics
The hospital will often default to proposing the structure that maximizes its own interests, which may not align with yours. Before any hospital conversation, know which structure you are open to and which you are not. If the HOPD Medicare premium does not exist for your location (site-neutral), the administrative burden and autonomy cost of full provider-based designation may not be worth the commercial payer upside alone. A co-branding or MSA arrangement might deliver 70% of the referral benefit with 10% of the complexity — and leave your PE exit options intact.
Most practice owners understand that becoming an HOPD requires some form of CMS approval — but few understand what that process actually entails. The hospital manages the attestation submission, but you will live with the operational requirements it imposes. Understanding what CMS is looking for is essential before you commit to the structure.
Under 42 CFR § 413.65, CMS requires that an off-campus location meet four categories of integration requirements to qualify for provider-based status. These are not one-time checkboxes — they must be maintained continuously or the designation is at risk.
Critical 2026 Development: Mandatory Attestation and Separate NPI Now Required by Law
The Consolidated Appropriations Act of 2026 (CAA 2026), signed into law on February 3, 2026, fundamentally changed the attestation landscape. Previously, provider-based attestation was voluntary for most off-campus HOPDs. Under CAA 2026, it is now mandatory. By January 1, 2028, every off-campus HOPD must: (1) submit a provider-based attestation demonstrating compliance with 42 CFR § 413.65, and (2) obtain and bill under a separate, location-specific NPI distinct from the main hospital's NPI. Off-campus HOPDs that fail to meet both requirements by January 1, 2028 will be ineligible for Medicare payment under OPPS — including grandfathered sites. This is not administrative housekeeping. A 2016 OIG report found that more than three-quarters of a sample of hospitals that had not voluntarily attested had at least one location that failed to meet a provider-based requirement. Any hospital proposing a new HOPD affiliation with your practice must have a clear plan for meeting these 2028 requirements — and any historical non-compliance with provider-based rules creates retroactive overpayment exposure that the hospital has an affirmative duty to disclose and repay.
The practical takeaway: provider-based attestation is now mandatory — not optional — for all off-campus HOPDs, with a hard deadline of January 1, 2028. Before signing any affiliation agreement, ask the hospital to confirm: (a) which of their existing HOPD locations have already submitted attestations and been found compliant, (b) whether any locations have compliance gaps, and (c) who bears financial responsibility if the attestation process reveals historical overpayments. The separate NPI requirement also has operational implications — billing systems, payer contracts, 340B program eligibility, and Medicaid enrollment may all require updates when a new location-specific NPI is obtained. These are not minor IT tasks.
Hospital-drafted affiliation agreements are written by hospital counsel, reviewed by hospital leadership, and designed to protect the hospital's interests. That does not make them predatory — but it does mean that the terms favorable to you will not appear unless you put them there. The following are the most common red flags that should trigger immediate concern and independent legal review before you proceed.
Before investing time, emotional capital, and legal fees in an HOPD pursuit, it is worth running an honest self-assessment. The following framework is not a substitute for professional advice — but it identifies the conditions under which HOPD affiliation is most and least likely to make sense for an outpatient PT practice owner.
HOPD May Be Worth Pursuing If...
- Your primary objective is commercial payer rate improvement and referral access — and you have verified, payer by payer, that the hospital's existing HOPD commercial contracts pay materially more for PT services than your current independent contracts. This is the correct financial basis for a PT-focused HOPD arrangement, not Medicare.
- Your location is on or near a hospital campus (within 250 yards), which supports the operational integration required for provider-based status and positions you well for any non-PT services that may benefit from OPPS rates.
- Your Medicare payer mix is not the primary financial driver — because PT therapy codes are inherently site-neutral under Medicare, HOPD designation does not increase Medicare revenue on therapy CPT codes. Medicare volume is relevant for patient notice compliance obligations and billing infrastructure, not as a source of reimbursement uplift.
- Your market is dominated by one hospital system with strong commercial payer leverage, and that system's HOPD commercial rates materially exceed what you can negotiate independently — and you have verified this payer by payer.
- You have no near-term intention to sell to a PE buyer and are comfortable with the long-term employment model that HOPD affiliation typically requires.
- The referral access to hospital-employed orthopedic surgeons is your primary strategic objective — and you have confirmed that HOPD affiliation, rather than a lighter referral arrangement, is genuinely required to access those referrals.
- You have independent legal and financial counsel engaged before any term sheet or letter of intent is signed, and you are prepared to negotiate hard on revenue share, FMV, non-compete scope, and termination rights.
HOPD Is Probably the Wrong Path If...
- Your clinic is off-campus and not grandfathered — site-neutral payment eliminates the Medicare premium entirely, and the commercial payer story must carry the full financial case, which is increasingly fragile.
- You are within 3–5 years of wanting to sell — HOPD designation forecloses a PE sale, and PE valuations for well-run PT practices are often materially higher than what a hospital acquisition will offer.
- The hospital is pitching the arrangement on Medicare revenue uplift from PT visit volume — this premise is incorrect. PT therapy codes are inherently site-neutral under Medicare. If the financial model depends on a Medicare facility fee premium on 97110, 97112, 97140, or similar codes, the model is wrong regardless of payer mix.
- The hospital cannot produce actual payer-specific commercial rate data for its existing HOPD locations — if their financial case rests on projections you cannot verify, the deal economics are speculative.
- Your commercial payers have adopted or are likely to adopt site-neutral policies (Cigna already has as of October 2025) — the commercial premium is eroding, not growing, in the current environment.
- Autonomy and clinical culture are central to your retention strategy — hospital productivity quotas, documentation requirements, and institutional bureaucracy are real and will affect your therapists' satisfaction and your ability to retain the team that made your practice valuable.
- The hospital's offer includes no meaningful revenue share on the HOPD facility fee — if you are effectively trading ownership and autonomy for an employed PT salary, you are likely leaving significant value on the table compared to what a competitive sale process would produce.
The Question Worth Asking First
Before any hospital conversation, ask yourself: what problem am I actually trying to solve? If the answer is referral access — a lighter co-branding or referral development agreement may solve it. If the answer is reimbursement — understand that the financial case for a PT-focused HOPD rests entirely on commercial payer rates, not Medicare. Verify those commercial rates payer by payer against the hospital's actual existing HOPD contracts. If the answer is liquidity — a competitive sale process to PE-backed buyers may produce a higher outcome than a hospital employment deal. HOPD affiliation is a meaningful tool for the right practice in the right market. But it is not a Medicare reimbursement play for PT — and the cost of discovering that after signing is high.
This may be the most consequential section for PT practice owners who are thinking about the long term — not just the next few years of operations, but ultimately what happens when you are ready to step away from the practice you built.
HOPD affiliation and a PE sale are structurally incompatible. PE-backed consolidators in the PT space — Confluent Health, ATI, NovaCare, Upstream, and others — acquire practices to operate them under their own Medicare numbers, billing infrastructures, and management platforms. An HOPD designation is tied to the hospital's Medicare provider agreement. You cannot transfer HOPD status to a PE buyer. If your practice is designated as an HOPD, it is effectively off the market for PE acquirers, and the PE-based valuation methodology (EBITDA multiples, which can be significant for well-run PT practices) no longer applies in the same way.
This does not make HOPD affiliation the wrong choice — but it means the decision should be made with full awareness of the trade-off. A hospital acquisition may offer meaningful liquidity and long-term employment stability. It also typically values practices differently than PE buyers do, often using cost-based or strategic value frameworks rather than pure EBITDA multiples.
If you are within three to five years of wanting to sell your practice, speak with an M&A advisor before entering any hospital affiliation discussions. Running the HOPD track and the PE sale track simultaneously is possible but requires careful management to avoid triggering competitive concerns, referral source anxiety, or staff attrition. The decision tree between these two paths has significant downstream financial consequences — often measured in millions of dollars for practices above a certain scale.
A Note from Mihama Acquisitions
We work exclusively with physical therapy, occupational therapy, and speech therapy practice owners navigating major strategic decisions — including HOPD evaluations, PE transactions, and hospital acquisitions. We understand the specific economics of outpatient PT: your CPT mix, your supervision ratios, your payer dynamics, and what makes your practice valuable to each type of buyer. If you are weighing an HOPD opportunity or want to understand how it compares to what you could achieve through a competitive sale process, we offer confidential, no-obligation consultations. We will give you a candid, independent view — not the one the hospital wants you to hear.