Earlier this month, U.S. Physical Therapy (USPH) fired the starting gun for the entire physical therapy industry. USPH shattered its Q2 2025 expectations, reporting earnings of $0.81 per share, which were well above Wall Street’s $0.71 consensus and up from $0.73 a year ago. The implication? The headwinds that have weighed on industry performance for the past five years are finally easing. Physical therapy has hit its trough.
For those watching the sector closely, this moment has been building. Our firm, Livingstone, the healthcare M&A advisor with over two dozen completed physical therapy M&A deals, has been prognosticating that early 2025 would mark the bottom for industry performance. To understand where the industry is headed, you must recall the challenges of the past few years.
A Pandemic Hangover That Wouldn’t Quit
Since the pandemic, the physical therapy industry has taken it on the chin. Four straight years of Medicare reductions, capped by a fifth cut of 2.9% in 2025, were just the beginning. Even the most resilient operators were further strained by staffing shortages, wage inflation, and demand that consistently outpaced capacity. Yet, under that pressure, something compelling happened: the savvy platforms adapted. Lower reimbursing payors were dropped. Payor mix shifted to higher-value segments like workers’ compensation and personal injury. Rates were negotiated, renegotiated, and then negotiated again. These strategic initiatives set the stage for accelerating performance across the industry.
Why the Tide Is Turning
The upcoming bull market in physical therapy is about five core fundamentals:
- Rising Visit Volumes. Demand is robust and growing stronger, fueled by demographic tailwinds, an increasingly active population, and on-trend / cost-effective clinical pathways.
- Reimbursement Tailwinds. Yes, Medicare reimbursement for physical therapy declined in 2025. But, in 2026, a 3.3% increase in the conversion factor is expected. The caveat? RVU changes may offset some gains. Still, with Medicare reimbursement remaining relatively flat, improved commercial payor mix, and favorable renegotiated contracts still in effect, overall reimbursement rates should trend higher.
- Labor Stabilization. The labor market is improving. Clinics remain understaffed but highly productive. Therapists are seeing more patients, as visits per clinic per day are up, and that trend should continue.
- Efficiency Upgrades. The introduction of tech advancements such as artificial intelligence (AI), enhanced clinical coaching, and smarter scheduling tools have driven real productivity gains in physical therapy clinics. Therapists are now treating more patients per day, which is extending patient access, lowering cost per visit, and driving operating leverage.
- Operating Leverage. With growing visit volumes, rising net reimbursement, and leaner cost structures, the math starts to work in the operator’s favor. Margins are expanding and the benefits of scale are increasingly evident across the sector.
M&A on the Horizon
When industry profit margins rise, investors take notice. If this really is the beginning of the next physical therapy bull market, 2026 won’t just be the year of recovery. 2026 will be the year of acquisitions and consolidation. Private equity firms that invested in physical therapy platforms in the uncertain months before or just after the pandemic are now eyeing the exit ramp. EBITDA is climbing. Valuations are improving. There’s a compelling case for a wave of platform-level M&A that is driven by strong fundamentals.
The Bottom Line: The Bulls are Running.
For the first time in many years, physical therapy industry fundamentals are pointing decisively up and to the right. Physical therapy, battered by pandemic disruptions, reimbursement pressures, and labor shortages, is standing up straighter. If Livingstone’s thesis holds, the strongest quarters are on the horizon.
Ryan Buckley is a Partner and Co-Head of Healthcare at Livingstone, a global mid-market investment bank providing M&A and debt advisory services. Livingstone is the most active mid-market healthcare M&A advisor to the physical therapy industry, having sold eight physical therapy platforms collectively valued at nearly $1 billion since 2021. Recent physical therapy M&A deals completed by Livingstone include Spine & Sport (to PRN), Metro Physical & Aquatic Therapy (to U.S. Physical Therapy), MOTION PT Group and Access Physical Therapy & Wellness (both to Confluent), and Therapy Partners Solutions (to Lee Equity). Other notable successes within physical therapy include transactions involving industry leaders such as Agility Health, Alliance Physical Therapy Partners, ATI Physical Therapy, Fitness Quest, Foothills Therapy Partners, and PT Solutions.