U.S. Physical Therapy Q2 2026 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2026

Key Takeaways

  • Positive Sentiment: Strong operating momentum: Q2 revenue increased 8.5% to $214 million, with visits up 6.6%, record visits per clinic per day of 33.5, and revenue per visit up $2.26 to $107.59. Physical therapy and industrial injury prevention revenue grew 8.4% and 9.1%, respectively.
  • Positive Sentiment: Hospital affiliations are expected to accelerate growth: Thirty-one clinics were integrated into hospital partnerships during Q2, with the remaining 39 expected to transition in Q3. Management expects reimbursement of licensed staff costs, stronger referrals, and reduced administrative expenses to provide meaningful margin and EBITDA benefits in the second half and into 2027.
  • Negative Sentiment: Profitability was pressured by elevated costs: Physical therapy gross margin fell to 19.9% from 21.4%, while adjusted operating results declined to $11.3 million from $12.4 million. Higher-than-usual employee healthcare claims accounted for roughly $3.2 million of year-to-date pressure, and advance hiring for hospital affiliations added short-term cost absorption.
  • Positive Sentiment: Full-year outlook was reaffirmed: The company maintained its 2026 adjusted EBITDA guidance of $102 million to $106 million, citing strong volumes, hospital-affiliation contributions, expected Medicare pricing increases, and ongoing commercial and workers’ compensation rate gains.
  • Positive Sentiment: Expansion capacity remains substantial: US Physical Therapy completed a 12-clinic acquisition for $16.4 million and has three announced 2026 acquisitions totaling $38 million in purchase price. An expanded $450 million credit facility, $229 million of revolver availability, and a $125 million accordion provide liquidity for additional acquisitions and hospital-related opportunities.
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Earnings Conference Call
U.S. Physical Therapy Q2 2026
00:00 / 00:00

There are 10 speakers on the call.

Operator

Thank you. Good morning, and welcome, everyone, to our US Physical Therapy second quarter 2026 earnings call. With me on the line include Eric Williams, our President and Chief Operating Officer, East. Jason Curtis, our Interim CFO, also serving as our Senior Vice President of Finance and Accounting. Rick Binstein, our Executive Vice President and General Counsel. Graham Reeve, our Chief Operating Officer, West, and Kate Venturini, our Vice President of Accounting and our Controller. Before we make some prepared remarks on the quarter as well as the year, we need to cover a brief disclosure statement. Kate, if you would, please.

Speaker 1

Thank you, Chris. This presentation includes forward-looking statements which involve certain risks and uncertainties. These forward-looking statements are based on the company's current views and assumptions. The company's actual results may vary materially from those anticipated. Please see the company's filings with the Securities and Exchange Commission for more information. This presentation also contains certain non-GAAP measures as defined in Regulation G, and the related reconciliations can be found in the company's earnings release and the company's presentations on its website. Back to you, Chris.

Operator

Thanks, Kate. This morning, I'm going to spend a little time talking about where we are going with a heavy concentration around these hospital affiliation arrangements and then try to dovetail that into our results for the quarter as well as look forward because it's all intertwined. For starters, volumes across the company are and have been very strong. This includes our Metro partnership, now part of our long-term NYU Langone affiliation. For some perspective, visits per clinic per day were at an all-time high this quarter at 33.5 per day. For the past 24 consecutive months and 37 out of the last 42 months, we have set visit per clinic per day record volumes, including those at our hospital-affiliated clinics. They're all very strong.

Operator

This is important because part of our cost equation in Q2 is related to upfront hiring with the expectation of referral and volume translation within these partnerships. In short, the transition of our NYU-affiliated clinics has gone very well. By the end of this month, we will have transitioned all 60 of our Metro clinics and will benefit from approximately 50 clinicians hired in advance, which will drive the opportunity for growth going forward. That was at the expense of some short-term cost absorption. However, once those facilities are transitioned, that creates nothing but upside opportunity with no cost downside based on how these agreements work with our hospital partners. Just another point of perspective, I talked with Michael earlier this morning. Our year-over-year growth at Metro from a volume perspective significantly exceeds 100,000 visits, and that was before we had the support of our NYU Langone-affiliated partners.

Operator

We're looking forward to a great year ahead. We had an opportunity to hire clinicians coming out of school who were available, and we know we're going to be in a position to grow this business, we jumped on that. Another indicator of building strength was demonstrated in our best ever net rate this quarter. Finishing the quarter at $107.59, up $2.26 from the year-ago quarter and trending solidly within the quarter itself. Once these hospital clinics are fully onboarded, that will provide additional lift as we finish the year and head into 2027. Embedded in that rate lift are increases across commercial, Medicare, and workers' comp, in addition to the lift provided by the limited number of clinics transitioned inside of the quarter into our hospital affiliations.

Operator

That clinic number will grow significantly in quarter three with approximately half of the busiest Metro clinics transitioning in the current period, as well as the Gulf Coast partnership, which is expected to go forward by the end of this month. One of the areas dragging against us a bit so far this year has to do with our self-insured healthcare costs. Due to a small number of very significant claims across our employee base, we're running well ahead of our usual cost on our claims experience this year, and it is against a much better than average experience in 2025 when claim volume was lighter than normal. That swing from last year to this year, above the average, is an approximately $3.2 million difference between the years so far.

Operator

That we have factored into our decision to guide as we have for the remainder of the year. PT revenue growth, supported by visit strength and record net rate, grew by 8.4%, with industrial injury prevention revenue growing by over 9% year-over-year. Same-store revenue growth for PT was north of 3% for the quarter, with a nice progression since early last year back to a historically strong average. Margins for our IIP business were steady, slightly above 20%, while PT margins were pressured on a combination of our internal benefits-related healthcare costs and some front-loading of those hospital implementation costs that I just mentioned. With continued WelcomeWare rollout and expected takeouts there, and strong performance from our hospital-affiliated clinics, we expect that we can influence or offset some of these headwinds between now and year-end.

Operator

On the development front, we have just very recently announced a 12-clinic partnership acquisition in a great new state with some young, hungry partners who know how to deliver great care. That follows several earlier announced acquisitions in the PT as well as IIP areas. We continue to pursue good accretive opportunities where care is superior and the forward trajectory looks good in both the PT and the injury prevention spaces. On the hospital development front, our pipeline of opportunities continues to grow. We expect further relationships like the one with NYU, which will positively impact 2027 or 2027 outlook in a meaningful way. Finally, we are working on our own digital and hybrid opportunities for 2027 and have recently hired a very accomplished, well-known to us, senior leader to work with our team to identify the right partners around which to make that happen.

Operator

Our primary focus at this time is to build the foundation that we need in order to accelerate our opportunity later this year and into 2027 and forward. With the help of an increased Medicare rate projected for 2027, in combination with continued commercial rate lift and the extraordinary lift associated with our hospital affiliations, we expect very good things in the coming year and beyond. That concludes my prepared comments. I'll ask Jason to cover the financials in a little bit more granular detail before we open things up for questions. Jason, go ahead.

Speaker 2

Thanks, Chris, good morning, everyone. Total revenue for Q2 2026 was $214 million, an 8.5% increase over last year. Physical therapy revenue for Q2 2026 was $182 million, an 8.4% increase over last year, including a nice 3.5% increase in mature clinics. Q2 2026 physical therapy revenue includes $5.6 million from the initial phases of our hospital affiliation rollout. Q2 2026 visits were 1,662,000, a 6.6% increase inclusive of hospital affiliation visits. Average daily visits per clinic was 33.5 in Q2 2026, compared to 32.7 in Q2 2025. Q2 2026 physical therapy revenue per visit, inclusive of hospital affiliation revenue and visits, was $107.59, a $2.26 increase versus last year. Medicare revenue per visit increased 3.7% in Q2 2026.

Speaker 2

Year to date 2026 Medicare revenue per visit compared to full year 2025, which provides for a longer measurement period to smooth quarterly variability, is approximately in line with our expectations. As a reminder, the 2026 guidance includes a 1.75% increase in Medicare, which equates to a 1.1% increase after taking into account the mix of Medicare Advantage plans. The expected revenue lift for Medicare increases in full year 2026 is $2.5 million, equating to a $0.35 in revenue per visit lift. Commercial payers and workers' compensation revenue per visit also delivered healthy increases in Q2 2026 of 1.2% and 2.0% respectively. Q2 2026 adjusted salaries and related costs as a percent to revenue was 57.5% compared to 56.4% in Q2 2025. This increase is largely attributable to higher than average medical costs in the current quarter compared to lower than average medical costs in Q2 2025.

Speaker 2

Reporting salaries and related costs as a percent of revenue replaces the company's previous methodology of reporting salaries and related costs per visit. For clinics operating as hospital affiliation, salaries and related costs of licensed staff are fully reimbursed by the hospital systems, with the reimbursement recognized as revenue for USPH. This structure allows USPH to invest in additional staffing without the risk of negatively impacting bottom-line profitability. Utilizing a percentage of revenue is a more meaningful metric. Adjusted physical therapy gross profit margin in Q2 2026 was 19.9% compared to 21.4% in Q2 2025. As noted, employee medical costs in Q2 2026 compared to Q2 2025 were a headwind. During Q2 2026, the company integrated 31 existing clinics into hospital affiliations. The remaining 39 existing clinics are expected to integrate during the third quarter.

Speaker 2

IIP revenue for Q2 2026 was $32 million, a 9.1% increase over last year, including a 3.6% increase in comparable partnerships. IIP margin was 20.4% in Q2 2026 compared to 20.3% in Q2 2025. Adjusted corporate expense as a percent of revenue was 8.4% in Q2 2026 compared to 8.7% in Q2 2025. The company is continuing its effort to upgrade its finance and HR systems with an expected go live at the beginning of 2027. This upgrade will improve efficiencies throughout the organization and position USPH for future growth. Interest expense was $3.2 million in Q2 2026 compared to $2.4 million in Q2 2025. In Q2 2026, the all-in effective interest rate, including all associated costs, was 5.3%. Income tax rate in Q2 2026 was 29.6%. Year to date 2026 income tax rate is 30.5%, approximately in line with full year 2026 expectations.

Speaker 2

Adjusted EBITDA for Q2 2026 was $27.0 million compared to $26.9 million in Q2 2025. Adjusted operating results were $11.3 million for Q2 2026 compared to $12.4 million for Q2 2025. Adjusted operating results per share were $0.75 in Q2 2026 compared to $0.81 in Q2 2025. Net income attributable to USPH shareholders was $9.9 million in Q2 2026 compared to $12.4 million in Q2 2025. Included in net income was a loss on change in fair value of contingent earn out considerations of $992,000 in Q2 2026 compared to a gain of $790,000 in Q2 2025. Improving results in recent acquisitions with contingent earn-outs increases the associated liability, resulting in a charge to the P&L. As such, a loss on change in fair value of earn-out consideration reflects improving underlying performance of impacted acquisitions.

Speaker 2

Earnings per share were $0.25 in Q2 2026 compared to $0.58 in Q2 2025. Under GAAP, changes in the value of redeemable non-controlling interests are excluded from net income, but are included in the earnings per share calculation. Improving performance in partnerships with redeemable non-controlling interest has a dilutive impact on earnings per share. Turning to the balance sheet, cash and cash equivalents were $25 million at the end of Q2 2026, compared to $36 million at the end of year 2025. Credit facility borrowings were $221 million at the end of Q2 2026, compared to $162 million at the end of year 2025. Reflecting the impact of the previously announced upsized $450 million credit facility, revolver availability at the end of Q2 2026 was $229 million, compared to $145 million prior year.

Speaker 2

In addition to increasing revolver availability, the new credit facility also contains $125 million accordion, providing sufficient liquidity to fund sizable future acquisitions. During the quarter, the company repurchased 306,000 shares on the open market for a total consideration of $19.2 million at an average share price of $62.80. Including share repurchases made in 2025, the company has materially concluded repurchases under its current $25 million authorization. Year to date Q2 2026 operating cash flow was $38 million compared to $30 million for year to date Q2 2025. As Chris mentioned, subsequent to the end of the second quarter, the company completed the acquisition of a 12-clinic physical therapy practice for a purchase price of $16.4 million. This practice currently generates $12 million in annual revenue and 112,000 annual visits.

Speaker 2

Including the two previously announced Q1 2026 acquisitions, the cumulative purchase price of our three announced 2026 acquisitions was $38 million, with a combined annualized revenue of $27 million. Taking into account the year-to-date 2026 results and the expected increasing benefit of hospital affiliations in the back half of the year, we are reaffirming our full year 2026 adjusted EBITDA guidance of $102 million-$106 million. With that, I will turn the call back to Chris.

Operator

Thanks, Jason. Great job. Appreciate it. Operator, we're going to go ahead and open it up for questions.

Speaker 3

Thank you. If you'd like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star one to ask a question. We will take our first question from Benjamin Rossi with J.P. Morgan. Please go ahead, your line is now open.

Operator

Hey, Ben.

Speaker 2

Hey, Ben.

Speaker 4

Good morning. Hey, thanks for taking my questions here. Just on the back half ramp implied for the remainder of the year, sounds like that's going to be more weighted towards 4Q once those remaining facilities have been integrated in 3Q. You also mentioned the additional 50 hires being front-loaded. Can you just walk us through the specific initiatives that you're expecting to deliver margin lift during the back half of the year, and then how should we be thinking about the timing of associated costs and benefits during 3Q and 4Q?

Operator

Yeah, we have a number of things. I mean, the WelcomeWare initiative we've talked about earlier, that involves the semi-virtualization of a front desk and aggregation of certain functions to potentially remote site. That we know results in our ability to take out headcount at the front desk. That will continue to ramp. We're more than halfway through our expected ramp in there. The big impact, Ben, is just the impact from getting these hospital facilities fully loaded. Jason mentioned now we have close to 40, 39, I believe, that will flow in this quarter. Some of those are already in the works. Many of them are with a few to remain here this next month. That's going to give us a good solid lift. The other things, like I said, we're working on for next year.

Operator

Those are the big impact things between now and year end.

Speaker 4

Great. Appreciate the color there. Just a couple clarifications on that $5.6 million in revenue you reported from the hospital affiliation during Q2. Can you just walk through the mechanics of the hospital affiliation revenue recognition, how it flows through your P&L? Is there any ballpark for how many visits those clinics are currently seeing? If we're assuming those volumes are coming in at a slight premium to your consolidated revenue per visit, is it fair to think of this group currently representing maybe 50,000 patient visits, or is that overstating volumes? Thanks.

Operator

Jason, do you want to take a swing at the revenue recognition part and the pieces, parts associated with that?

Speaker 2

Yeah, sure.

Operator

Eric, maybe we can touch base on the visit number of this remaining group.

Speaker 5

Sure. The $5.6 million comes from two components of the agreement with the hospitals. One is a per-visit fee. For every visit that we see, every patient that we see, we receive a fee, an income from the hospitals. Additionally, as Chris mentioned, we receive a reimbursement for the licensed clinical staff who are treating those patients. The sum of those two income streams is the $5.6 million. That would, just for clarity, replace the net patient revenue that we would have previously seen when they were operating pre-hospital affiliations. The $5.6 million is the hospital increase. There would be a reduction to net patient revenue, but it would be less than the increase we're seeing from the $5.6 million increase.

Operator

Does that make sense?

Speaker 4

Yeah. No, appreciate the additional details there.

Speaker 6

In terms of the volume going through those Metro clinics, just the outpatient clinics, we're averaging about 45 visits per day per clinic in our New York market. Expect that to continue to increase with our NYU relationship.

Speaker 4

Got it. Just a quick clarification.

Operator

Just to provide a little perspective. Prior to the NYU Langone opportunity, we were able to grow in year-over-year basis about, these are round numbers, but about 120,000 visits year over year. That was 2025 to current period 2026. That's without the support of that hospital. Those clinicians that we hired, we fully expect to get them very busy and to produce very significant growth between now and the same time next year, including additional clinics, potential tuck-ins, and other things that we have in the works.

Speaker 4

Great. Appreciate the details there.

Speaker 3

Thank you. We'll move next to Lawrence Solow with CJS Securities. Please go ahead.

Operator

Morning, Larry.

Speaker 5

Morning, Chris. Just follow up on that one. The 50 clinicians that you hired in advance, essentially this quarter, and if I do the math, if they're making $100,000 a year, that would be like $2 million in the quarter or something like that. Maybe it's more than that. Will that be reimbursed under the Alliance? Essentially, it should be, right?

Operator

Yeah. It's not going to erase our Q2 expense, but as soon as those clinics are rolled into the arrangement, that cost gets picked up and effectively supplemented by NYU. It was important for us to make that decision. Michael made a good decision, I think. Schools produce graduates at certain times of the year, and based on our confidence and our ability to grow, we kind of have to reap those opportunities when they're available. That hurt us a bit in Q2.

Speaker 5

Right. Is my number, is that right? A couple million dollars, plus or minus? Is that fair ballpark?

Operator

Well, I think the 100,000 per person is probably in the ballpark. When you look at benefits and sign-on bonuses and other things, maybe a little bit more than that, but I think it's probably close enough.

Speaker 5

Okay. The year to date, you mentioned a little over $3 million higher insurance. Was that mostly felt this quarter, or was it already running higher in Q1?

Operator

The bigger impact was Q2. Jason has the quarterly breakdown. We ran light all of 2025, we knew we were running light. We budgeted to a median number where we've averaged for 2026, we've pretty significantly exceeded that number on these handful of semi-catastrophic cases that we have.

Speaker 2

About 80% of the $3 million that Chris referenced was second quarter, when you think about the spread between the higher than average experience in the second quarter 2026 versus lower than average experience in the second quarter 2025.

Speaker 5

Gotcha. That is a couple of million between that and the pre-hiring or the hiring in advance. That probably could all in, $2.5 million-$3 million in the quarter or something on your operating profit. Okay. I appreciate that clarification. The volumes were nice, really strong, and good to see Medicare pricing finally coming through here. Just on the commercial side, a little bit light, a little over 1% increase. Anything had been running around 2. I don't want to split hairs on 1 quarter, but anything to call out there?

Operator

No, it is going to move around a little bit, and it is going to depend on when deals went into effect and quarterly timing and just like we talked about, kind of the catch-up on the Medicare side, which gets us to a more normal average. We really look at it over the course of a year. We are kind of where we expect it to be. We have more to come, but it is a little bit lumpy here and there, depending on the size of the contracts and the timing.

Speaker 5

Yeah. No, that makes sense.

Speaker 2

We were up 3.4% in the first quarter on commercial.

Speaker 5

Oh, okay.

Speaker 2

Yeah.

Speaker 5

Okay. Year to date, you're still running over 2%. Okay, great. Just lastly, you mentioned you recently refinanced, increased the size of your credit facility. I think you also mentioned the accordion you added. Sounds like you're pretty confident in terms of continuing to do acquisitions and potentially even increase that activity. Is that fair?

Operator

Yeah, it's all fair. We're going to use the same filter that we've always used. We're not going to spend differently just because we have money available. We're not going to be imprudent. It gives us the room to do the things that are available, if we feel like it's the right thing to do.

Speaker 5

Gotcha. Great. Okay, great. Thanks, Chris. I appreciate it.

Operator

Thanks, Lauren.

Speaker 3

Thank you. We'll move next to Jack Slovin with Jefferies. Please go ahead.

Operator

Hey, Jack.

Speaker 7

Hey, guys. How's it going, Chris? Thanks for taking the question. I guess I want to touch maybe not on the interim. It seems you've covered enough on sort of the moving pieces near term around the hospital partnerships. On some of the comments you made, Chris, as far as 2027 goes in the pipeline, can you maybe give a little more color on sort of what that looks like and sort of when you think maybe some of the next announcements of partnerships could start to come off? Secondly, if you think very long term and you look across your whole portfolio, it's obviously a very exciting opportunity.

Speaker 7

How do you think about across the whole base of clinics you have, how many of these could potentially be eligible based on the market or potential hospital partners, et cetera, of sort of how far you could potentially push into hospital partnerships on a longer term basis? Thanks.

Operator

Yeah. I'll take the second part of that first. On a longer term basis, I think slowly and steadily, we can push into a pretty good subset of our portfolio. When you look at right now the top 30 or 40 partnerships in our company, they already aggregate 75% or 80% of our earnings. These are partnerships typically in MSA markets where there's good population support, multiple hospital systems, and where we have good brand recognition and reputation. We can't address all the markets all at once. These deals take I wish they could move as fast as we can move because we can move very fast. I have a great team. Our general counsel's fantastic, and he can move quickly with these, and the operations teams can move quickly.

Operator

We're dealing with hospital systems that when they think they're moving quickly, we think we're watching paint dry a little bit sometimes. They're gonna happen. You're gonna get some additional announcements. You can't predict the absolute cadence of these. I would be over my skis and outside my point of control to be able to do that. We feel confident that 2027's gonna look meaningfully different with the next few of these.

Speaker 7

Okay. Really helpful. Just to follow up maybe on a slightly different side of things. You have this deal coming through in three Q with the 12 clinics. I know entering the year, you're pretty bullish on sort of potential opportunities on the inorganic side of things via M&A. Can you speak to maybe if there are more to come on this front, other things that you guys have in the pipeline right now? We'd love to hear about sort of the current state of M&A. Thanks.

Operator

Yeah, we continue to have good discussions. We're in diligence on some things right now. It's difficult for me to be particularly descriptive and not kind of put us in the corner on these because we're going through our process and we're in discussions with a number of people, both on the injury prevention side and on the PT side. We know that there are some things that are coming to market this year, probably late in the year, that are going to be a little bit bigger. We'll see. I think we'll produce a good development year, and we're excited, particularly once we get these hospital partnerships under the tent.

Operator

It gives us the ability to truly transform what we do. Because we're able to go out and find, in the case of New York, there's some really high volume practices that practically speaking on their own, don't make a lot of money, wouldn't be acquisition targets right now, that when you pull together the alliance we have with NYU Langone and the rate differential and the additional referral support, we can get those done all day long. They can have a meaningful impact. As meaningful of an impact as a larger acquisition might have historically where we're paying a lot of money. These we're not going to have to pay a lot of money for because they don't have big profit lines to begin with.

Operator

I think it opens up a front of ours that potentially accelerates cash flow, just based on the opportunity at hand and the way the numbers work. We're excited about that too.

Speaker 7

Got it. Really helpful color, Chris. One just touch up on the model for Jason here. I don't know if I missed this, but could you just speak to the, from a same store perspective in PT, the breakdown of visits and rate, in that just over 3% number you gave?

Speaker 2

Yeah, I think as we were talking, the math that you were talking about is a pretty reasonable one. In terms of the total increase, the mature clinic increase is 3.5%, and then the net rate increase is 2.1%. You're looking at around 1.5% coming out of visits, I think is a reasonable assumption to make.

Speaker 7

Got it. Appreciate that. Thanks, guys.

Speaker 3

Thank you. We will move next to Joanna Gajuk with Bank of America. Please go ahead.

Speaker 8

Hey, this is Joaquin Arriaga Martinez on for Joanna. Just wanted to ask quickly on the payer mix and how you guys saw self-pay increase throughout the quarter or decrease. Thanks.

Operator

Jason, you have that one?

Speaker 2

Yeah. We saw a small decrease in that particular line item. I think it's very important to note that, from a total percentage of the payer mix, self-pay is significantly less than 5%, runs in at the 3.5%, 3.5%-4% range. commercial Medicare and workers' comp are really where the needle movers occur.

Operator

Yeah, understanding the underpinnings to that question. We've gotten some questions related to hospital call-outs on increase for uninsured and things like that. We really don't see big swings to our payer mix, and we've never really ever seen a big swing in our un or under-insured populations. we've been very steady and volume's been very good as we've mentioned, and that part of our business is pretty steady as well. It's not a big part.

Speaker 8

Okay, thanks. could you talk about your workers' comp mix and what your average workers' comp revenue per visit increase was? are there more contracts you plan on bringing in or did bring in over the last quarter? Thank you.

Speaker 2

Our workers' comp, in terms of the penetration, is holding steady at about 10%. As I mentioned, we saw a nice increase of 2% in the second quarter in terms of revenue per visit.

Operator

Eric, I don't know, I don't have in front of me or off the top of my head even, any new contracts that would have influenced that one way or the other. I don't know whether you do.

Speaker 6

I'll tell you what's been driving rate and volume this has been a big initiative for us over the last couple of years, we've seen an increase in visits. We've seen an increase in rate. If you flashback three plus years ago, we really had fixed agreements that were driving the bulk of our work comp business. Those were network agreements. We brought someone on to lead this initiative for us. I think we've added somewhere around 22 or 23 agreements over the course of the last three years. We have another four to five agreements that are going to come online here over the balance of 2026. There is a difference between what those different contracts pay. The networks pay a little bit lower.

Speaker 6

The PPO agreements that we have pay a little bit higher, that's what we're seeing more of, is the PPO business on our door, it's having an impact on rate. To Jason's point, in Q2, we finished with a rate of $155.32 on work comp. That is 2% higher than prior year. I think we'll continue to see traction here on the rate and volume side as we continue to move forward.

Operator

Thanks, Eric.

Speaker 8

Great. Thank you.

Speaker 3

Thank you. Once again, if you would like to ask a question, please press the star and one on your keypad now. We'll take our next question from Mike Petusky with Barrington Research. Please go ahead.

Operator

Hey, Mike.

Speaker 9

Hey, good morning. I guess, Chris, I don't think I heard you, but if I did, forgive. Any comments on the proposed pricing for next year?

Operator

Yeah. We didn't touch on that. I appreciate, I called it out at the end. We have. I wasn't specific. We have the benefit of knowing that CMS intends to give modest price increase for next year. Somewhere between, we think, around one and a half %. That increase would, of course, affect our traditional Medicare, wouldn't necessarily affect our Medicare Advantage. It affects a percentage of those contracts, but not all. While it's not a big increase, it is an increase. The other thing that they've done, which they haven't done in a long time, is through our APTQI alliance. There was an indicator or an influencer of some of the rate movement around the particular indicator that I hadn't heard about before. It's called an IPSE multiplier.

Operator

Has to do with the subset of specialists who use the codes that are in your code set and the relative, call it aggregate reimbursement to those physicians. Said a different way, if in our code set, we know we have the majority of its physical and occupational therapists who make on an income basis, a pretty low amount when you look across the whole physician fee schedule. We also have orthopedic surgeons, we have interventional pain management specialists, we have physical medicine rehabilitation doctors who make a great deal of money. We discovered this a year ago. We were the only group in the physician fee schedule who's that IPSE factor that I mentioned, who didn't take into account the full width and breadth of everyone who uses that code.

Operator

Again, said differently, we were being treated differently than all the other groups in the physician fee schedule. We brought that to CMS's attention a year ago. They seemed surprised by it. They did their own work. They've given us an early indication that in 2028, we'll see the beginning of some, what we hope to be, it's not clear yet and it's not set yet completely, but a resolution of that difference in the form of some more positive momentum going forward into the 2028 year. Stay tuned on that. We've got more work to do. That's a positive indicator as we look forward.

Speaker 9

Okay. That's terrific. Thank you. That's helpful. Chris, I'm just curious, on the industrial injury prevention business, the organic growth in the quarter seems a little softer than what you guys have been-

Operator

Yeah

Speaker 9

sort of putting up some big numbers. I'm just curious, was there a piece of business lost there, or can you just comment on that?

Operator

Yeah, a couple of different things. I think if I remember right, going back last year, Q2, we had an 18% organic growth rate, pretty high comp, number one, on last year. We had one contract and it was an automobile manufacturer contract, and we got notice on this more than a year ago. It's a Japanese manufacturer who we had a long-standing good relationship. They changed the hierarchy of who in that company made the decisions about healthcare. We had very good local relationship at the plants where we provided service. Those people wanted to continue to keep us, yet somebody outside the market made the decision to move to a different provider. That happened in this year. I think we're feeling most of that in Q2. That's been replaced by Nissan Motors contract and the largest grocery store chain in Texas.

Operator

That contract, which is also expanding. We don't lose many contracts. That's really the one impact that we've had since we've been in this business is with that particular employer. It created a little bit of a dent, but we filled it in and we're going forward. We'll say we just hired what sounds like a great new salesperson for one of our partnerships, who is embarking on trying to be more aggressive in the market. We're excited about that and we'll see where that goes. We are a little lighter than normal, but we think it's temporary.

Speaker 6

Yeah, Chris, I'll add a little additional color commentary on there for one of our injury prevention businesses. Their pipeline continues to be very strong. However, they've had a number of open positions that have been taking longer to fill, so they haven't been able to execute against driving revenue with some of that pipeline. They've recently filled a number of those positions. To Chris's point, we believe this is temporary and we'll pick back up momentum.

Speaker 9

Great. If I could sneak one more in and then I'll

Operator

Sure

Speaker 9

turn it over to somebody else. Just on the expectations around adjusted EBITDA contribution from the hospital agreements. I think when these were first announced, you sort of said $7.3 million for 2027 in terms of adjusted EBITDA contribution. I honestly don't even recall what you said for this year. I think it was very modest.

Operator

Right.

Speaker 9

Can you just sort of update? I guess first, if you could help me with 2026 potential contribution and then is $7.3 million still your view or has that been adjusted? Thanks.

Operator

Let me speak to 2027. I'll have Jason walk you through the mechanics of 2026, because frankly, off the top of my head, I'm not confident I'm going to remember it exactly. We will update the market as we always do at the end of the year with what we expect those opportunities to do in 2027. We're very confident that the early results are going to position us for a greater number in 2027. Let me explain the reason behind that. When we guided, our board was comfortable giving guidance because this was so new. Our guidance was based on a trailing 12 months visit rate at the time we enacted that contract. It didn't include a run rate at the time. It also didn't include any takeouts in the business.

Operator

Takeouts would be as the business transitions and as we work down accounts receivable, we won't have the need for billing and collections inside these partnerships over a long period of time. Now, Metro will continue to keep billing collections for their home care business, we won't need billing collections for the outpatient business. That cost goes away. We didn't include that. We were very conservative with how we guided. We'll give a more specific number when we guide for 2027. It's going to be bigger than what we originally said.

Speaker 2

I would say for 2026, as we talked about in the second quarter, we did see some revenue that began to flow in from the hospital affiliations. Although we did have that offset from some of the pull forwards of hiring to get ourselves ready for the additional volume that we expect on a go-forward basis. If you take that $7.3 and assume that it's going to be something higher than that and divide it by four, you're getting something like $1.5 million-$2 million impact in Q4. Q3 is going to be somewhere in between those two numbers as we're continuing to ramp in the remaining clinics.

Speaker 9

Okay. Thank you very much, guys. Appreciate it.

Operator

Thanks, Mike.

Speaker 3

Thank you. At this time, this concludes our question and answer session. I will now turn the meeting back to Chris Reading for any additional or closing remarks.

Operator

Thank you. Listen, we appreciate your time this morning. We're available over the next days and week or weeks for any follow-up that you need, and we thank you for your interest and your support. Have a great day. Bye now.

Speaker 3

This concludes today's meeting. We appreciate your time and participation. You may now disconnect. Thank you.

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