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PSAs Have Many Benefits for Hospitals and Physician Practices

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Continuing our look at the various hospital-practice arrangements physicians may encounter as they look for their next job, we turn now to professional service agreements (PSAs).

In previous posts, we’ve looked at medical directorships, comanagement agreements, and management services organizations (MSOs).

A professional service agreement (PSA) is one in which “a hospital or healthcare system leases a practice and guarantees the physicians a minimum level of income,” Kenneth J. Terry, MA, explains over at Medscape.

How is this different from hospital employment? According to Terry, “the physicians retain ownership of the practice and can usually terminate the PSA if the relationship goes south.”

Some experts, like healthcare attorney Alice Gosfield, feel that physicians are getting a better deal with PSAs than they are with employment contracts. She told Terry that “a well-structured PSA” enables a group practice to retain “its cohesion as a business, including the ability to hire and fire staff.” The staff will still be the practice’s responsibility, allowing the physicians to call the shots based upon their needs.

Depending on the terms of the PSA, a practice is able “to continue billing because many hospitals do a poor job of billing for ambulatory care,” Gosfield added. “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.”

For the most part, Kevin Kennedy, principal with Seattle-based ECG Management Consultants, looks favorably upon PSAs as well, seeing benefits for physicians and hospitals alike. And in some sections of the country, he said it might be the best arrangement.

“For example,” he explained to Terry, “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,” Kennedy continued, “physicians want to keep managing the practice while having the security of an income guarantee from the hospital.”

Still, he observed, integration is what most healthcare systems want. So there may be intransigence regarding PSAs, and the hospital may end up “telling physicians to sign employment agreements or take a hike.”

As physicians who are looking for jobs, do you like the idea of being in a practice that has a PSA with a local hospital? From your perspective, how does the PSA compare to other hospital-private practice arrangements?

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