7 Options for Physicians Wary of Employment

Kenneth J. Terry, MA


January 13, 2016

In This Article

Professional Service Agreements

In a professional service agreement (PSA), a hospital or healthcare system leases a practice and guarantees the physicians a minimum level of income. While this model is similar to employment, the physicians retain ownership of the practice and can usually terminate the PSA if the relationship goes south.

Gosfield views PSAs as much better deals than employment contracts. Under a well-structured PSA, she notes, a group retains its cohesion as a business, including the ability to hire and fire staff. "If you hang onto your personnel, you get to deal with them the way you need to deal with them," she observes.

Kennedy takes a different view. If a hospital is willing to enter a PSA with a practice, he says, the physicians need not be too worried about staffing decisions. "A hospital would have to be pretty stupid and incompetent to ignore the input of physicians on staffing issues."

Some PSAs allow practices to continue billing because many hospitals do a poor job of billing for ambulatory care, Gosfield notes. In most PSA deals, reimbursement is based on work relative value units (RVUs), not collections; so even if a hospital comes up short on collections, physician income is not affected, at least in the short term. But if the practice keeps the billing and helps the hospital meet its financial targets, the physicians can renegotiate the PSA contract on more favorable terms.

Kennedy agrees that hospitals are not good at ambulatory care billing, but he doesn't think that this is a big issue for doctors. "If physicians are being paid on the basis of collections, they may want to be closely involved with the revenue cycle process. If they're paid on work RVUs, as most folks are these days, they're probably less concerned."

PSAs offer some advantages to both physicians and hospitals, Kennedy says. "It's a useful tool kit for solving certain types of problems. There are reasons why employment won't work in certain settings." For example, he notes, hospitals can't directly employ doctors in corporate-practice-of-medicine (CPM) states. (The CPM laws generally prohibit a business corporation from practicing medicine or employing a physician to provide professional medical services. Some states have carved out certain corporate employers such as HMOs, professional corporations, and hospitals as exceptions to the CPM prohibition). “And in some cases, physicians want to keep managing the practice while having the security of an income guarantee from the hospital."

But, as healthcare systems become more integrated, he adds, they're less willing to accept one-off exceptions for some practices. In other words, they may tell physicians to sign employment agreements or take a hike.


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