The conclusion of a medical practice sale marks the beginning of a new phase in your professional journey. This transition often involves more than just handing over clinical responsibilities; it introduces a new contractual relationship that can significantly impact your autonomy, financial stability, and legal protections. Central to this relationship is the Professional Services Agreement (PSA), a detailed contract that outlines your role, compensation, and operational expectations after the sale. Understanding how a PSA functions is essential for physicians aiming to safeguard their interests while maximizing the benefits of the deal. This guide will clarify the key aspects of PSAs, what to scrutinize during negotiations, and how to craft an agreement that aligns with your professional and financial goals.
What Is a PSA? And Why Opt for It Over Traditional Employment?
A Professional Services Agreement is a legally binding contract between a healthcare organization—such as a hospital, management services organization (MSO), or private practice—and a physician or practice entity. Instead of being employed as a W-2 worker, the physician operates as an independent contractor under this agreement, providing specified clinical and administrative services. This contractual arrangement is particularly prevalent in healthcare mergers and acquisitions because it offers flexibility and legal advantages, especially in states with strict corporate practice of medicine restrictions, which limit who can own or employ physicians.
Choosing a PSA over standard employment allows physicians to maintain control over their existing business entities, which can result in favorable tax treatments and operational autonomy. But how does this structure truly differ from traditional employment contracts?
| Feature | Professional Services Agreement (PSA) | W-2 Employment Contract |
|———|—————————————-|————————–|
| Your Status | Independent contractor | Employee |
| Tax Implications | Receive 1099 income; responsible for taxes | Taxes withheld from paycheck (W-2) |
| Benefits | Usually not included; you pay your own health insurance, retirement, etc. | Employer provides benefits such as health insurance, 401(k), malpractice coverage |
| Operational Control | Defines scope, but you may control how services are performed | Employer manages work hours, methods, and oversight |
Deciding between these two options is significant. For a comprehensive understanding of employment terms, review our detailed guide to physician employment agreements.
Dissecting a Healthcare PSA: Critical Clauses to Evaluate
A PSA is a comprehensive legal document that governs your entire post-sale professional relationship. Every clause warrants careful review, but particular attention should be paid to several core sections.
- Scope of Services
Your PSA must explicitly specify all services you are authorized to perform. Typically, these are categorized into “Practitioner Services” (direct patient care) and “Medical Administrative Services” (such as directorships or committee work). Vague descriptions can lead to scope creep, where you are expected to provide additional services outside your agreed-upon duties without appropriate compensation. Ensuring a detailed and precise scope helps protect against unwarranted expectations and liability.
- Compensation and Payment Terms
This section details how much you will be paid, the timing, and the method of payment. It is critical that compensation is determined based on Fair Market Value (FMV) to prevent legal issues related to kickbacks or improper incentivization. Any formulas that tie payments to referral volumes or revenue sharing should raise red flags and warrant close scrutiny. Industry data suggests that FMV for clinical services in 2024 generally ranges from $110 to $160 per RVU, depending on the specialty, while administrative stipends can range from $30,000 to $75,000 annually, based on scope.
- Term and Termination
Review the contract’s duration—commonly one to three years—and understand the renewal process. More importantly, clarify the conditions under which either party can terminate the agreement, including notice periods and grounds for “for cause” versus “for convenience” terminations. Having a reasonable exit clause ensures your ability to leave if circumstances change favorably or unfavorably.
- Regulatory Compliance
The PSA must include representations from both parties affirming their compliance with applicable laws and regulations, including the Stark Law and Anti-Kickback statutes. It should also specify adherence to federal healthcare program exclusions. Improper structuring of these agreements can lead to serious legal penalties, so thorough review and legal counsel are essential.
- Performance and Quality Metrics
The acquiring entity will set performance standards and quality benchmarks. The PSA should clearly define these metrics, reporting obligations, and patient satisfaction measures. Ensure these standards are realistic and clinically appropriate to avoid disputes or inadvertent non-compliance.
Structuring Compensation in PSAs: Staying FMV and Avoiding Pitfalls
In the context of healthcare practice sales, compensation is not merely a business matter—it’s a legal requirement. The federal government mandates that payments for professional services reflect FMV, which helps prevent illegal referral incentivization. Compensation structures may include:
- Flat Fees for administrative roles, such as directorships
- Per Service or Hourly Rates based on the number of procedures or hours worked
- Revenue Sharing or Collections-Based Payments tied to the income generated from services
- Blended Models combining several payment methods
In 2024, industry averages suggest clinical service rates range from $110 to $160 per RVU for general specialties. Administrative stipends are typically between $30,000 and $75,000 annually, depending on scope. To ensure compliance and fairness, it is advisable to obtain an independent valuation from a reputable firm, which can help justify the compensation package and prevent future legal complications.
Negotiation Checklist for Your PSA
Never accept a boilerplate PSA without review. Use this practical checklist to negotiate terms that protect your interests:
- [ ] Detail All Services in an Exhibit
Demand a comprehensive list of clinical and administrative duties to avoid scope disputes later.
- [ ] Obtain a Third-Party FMV Opinion
Engage a valuation expert to certify that your compensation aligns with industry standards and legal requirements.
Interesting:
- [ ] Review Termination Clauses Carefully
Ensure the agreement provides reasonable notice periods and clear conditions for termination, especially “without cause.”
- [ ] Clarify Performance Metrics
Understand how your performance will be assessed, and confirm that metrics are fair, transparent, and achievable.
- [ ] Confirm Insurance and Indemnification Responsibilities
The PSA should specify who bears malpractice insurance costs, including tail coverage, and provide indemnification for liabilities arising from your services.
- [ ] Document Everything in Writing
All terms must be captured in a signed, enforceable written agreement. Avoid relying on verbal promises, which are legally unenforceable.
> Pro Tip: Many acquirers present their standard PSA templates as take-it-or-leave-it documents. However, every clause is negotiable and should be reviewed by your legal team to tailor the agreement to your specific role and safeguard your interests.
Leveraging PSAs for Professional and Financial Autonomy
A well-drafted PSA can serve as a valuable tool in structuring your post-sale professional relationship, offering flexibility and control that traditional employment may not provide. Nevertheless, the true value hinges on the quality and fairness of the agreement. Poorly constructed PSAs can expose you to financial risks, legal liabilities, and operational constraints.
Given the complexities involved—including FMV considerations, Stark Law compliance, and contractual negotiations—it is critical to seek expert legal and financial advice. Experienced counsel can help you navigate the nuances of practice transitions, ensuring that your PSA aligns with your professional goals and legal obligations.
If you are in the process of a practice sale and need assistance in drafting or reviewing a PSA that prioritizes your financial security and professional independence, consult with the SovDoc team. We specialize in ensuring your post-sale agreements are as resilient as your clinical skills.
Frequently Asked Questions
What role does a PSA play after healthcare practice sales?
A PSA defines the contractual relationship between you and the new practice owner, outlining your responsibilities, compensation, and operational rights as an independent contractor rather than an employee. It provides flexibility beyond traditional employment models.
How does a PSA differ from a standard employment agreement?
Unlike a W-2 employment contract, a PSA typically classifies you as an independent contractor, responsible for your taxes and benefits, and allows greater control over your work. Conversely, employment contracts involve employer-managed benefits and oversight.
What are the critical clauses to review in a healthcare PSA?
Key sections include the scope of services, compensation structure, contract duration and termination rights, compliance with healthcare laws, and performance standards. Proper review ensures legal compliance and operational clarity.
How can I ensure my compensation complies with federal law?
Your pay must reflect FMV, avoiding arrangements that could be perceived as kickbacks. Engaging a valuation expert helps certify that your compensation is fair and compliant, avoiding legal pitfalls.
What steps should I take before signing a PSA?
Thoroughly review all terms, insist on detailed service descriptions, secure an FMV opinion, verify termination clauses, clarify insurance obligations, and have a qualified attorney review the entire agreement to protect your interests.
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