The healthcare industry is experiencing a notable shift in how physicians engage with employment and independent practice models. As hospitals, health systems, and corporate entities increasingly influence physician arrangements, many providers are exploring alternative pathways that balance autonomy with financial stability. This evolution in practice structures reflects broader economic pressures, regulatory changes, and the desire for greater professional flexibility. Understanding the nuances of these models, particularly professional service agreements (PSAs), becomes essential for physicians and organizations aiming to optimize their strategic positioning in today’s competitive market.
The Current State of Physician Practice Models
Despite the ongoing trend of hospitals and healthcare systems acquiring physician practices, a significant number of providers continue to seek ways to maintain their independence. This is driven by challenges such as recruitment difficulties, rising operational costs, and reimbursement fluctuations. Justin Chamblee, CPA and executive vice president of Coker Group, highlights that these factors often push private practices toward alignment with larger entities, but full employment isn’t always the preferred route. Instead, many are turning to contractual arrangements like PSAs, which allow physicians to retain a degree of independence while benefiting from the infrastructure of a larger organization.
One of the critical issues impacting practice economics is the Medicare Physician Fee Schedule (MPFS) update, particularly the reductions in the conversion factor. Although some specialties offset these decreases with increased work RVUs (wRVUs), procedural specialties tend to be more negatively affected due to the nature of their services. As Chamblee notes, specialties with a higher proportion of nonprocedural work are experiencing more favorable financial impacts, whereas others face tightening margins that accelerate the push toward strategic alignment.
Additionally, upcoming changes to shared and split visit billing are expected to further influence reimbursement rates, especially in procedural-heavy practices that utilize advanced practice providers (APPs). The shift toward billing at the APP level at 85% of the physician rate could diminish practice revenues once new rules are implemented in 2024, prompting further considerations around practice management models.
Exploring Alternative Options to Full Employment
For practices contemplating a transition from independence to hospital employment, PSAs present an attractive alternative. Justin Chamblee describes PSAs as arrangements that preserve many benefits of autonomy while providing a structured framework for clinical and financial integration. These agreements serve as a flexible middle ground, offering physicians a way to collaborate with hospitals without losing control over their practices.
Susan Nelson, MD, emphasizes that expanding growth opportunities is a primary goal for many organizations. “For my organization, we’re looking at how we optimize growth,” she states. PSAs can help achieve this by allowing practices to maintain operational independence, manage risk, and explore new revenue streams—such as expanding services or partnering with other providers—without the full commitments associated with employment models.
Key Elements of Professional Service Agreements
At their core, PSAs are designed to facilitate clinical and financial integration without the need for full employment. They contract for physicians’ professional services, which may include clinical work, administrative duties, quality improvement initiatives, or call coverage. Compensation structures often rely on productivity metrics like wRVUs rather than traditional collections, offering a performance-based approach that aligns incentives.
The structure of PSAs can vary broadly, including models such as independent contractor arrangements, call pay agreements, or clinical oversight contracts. These configurations enable physicians to test different levels of integration before committing to more comprehensive models. As Chamblee explains, transitioning from independence toward full integration is easier than reversing that process; thus, a phased approach with smaller steps—like moving from a private practice to a PSA—can be strategically advantageous.
The traditional PSA model typically involves physicians contracting with a hospital or health system, which manages staffing, administration, and overhead. Conversely, the global PSA model involves the hospital contracting directly with a practice for comprehensive management, often replacing collections-based financial structures with fixed payments that cover salaries, benefits, malpractice, and overhead. This approach can feel more like employment but retains certain elements of autonomy, especially if the practice maintains operational control.
Hybrid Models and Innovative Structures
Increasingly, practices are exploring hybrid arrangements that blend elements of traditional and global PSAs. These models often resemble joint ventures, where clinical and administrative services are separated and monetized through broader market engagement. For example, a large orthopedic group might establish a joint venture with the hospital, then expand its services to smaller practices within the region, leveraging shared infrastructure and generating additional revenue streams.
Chamblee notes that these hybrid models are particularly effective in markets where certain specialties, like orthopedics, have significant infrastructure assets. They allow practices to capitalize on their existing resources while maintaining operational independence, thus creating scalable, mutually beneficial arrangements.
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Economic Considerations: Traditional vs. Global PSAs
The financial structure of PSAs influences practice sustainability and profitability. Traditional PSAs typically base compensation on productivity metrics, with additional incentives for quality or other performance indicators. These arrangements often involve pass-through benefits to cover malpractice, administrative costs, and overhead, with APPs compensated via separate RVU rates depending on their role.
Global PSAs, on the other hand, involve fixed overhead payments, with the practice responsible for managing expenses within a predetermined budget. The hospital reimburses staffing, occupancy, and other costs at cost, and the practice retains management authority, aligning financial incentives with operational efficiency. Both models aim to support physicians’ clinical productivity while maintaining financial viability, but their reimbursement mechanisms differ significantly, affecting practice management strategies.
Special Considerations: Carve-Out PSAs
Carve-out PSAs focus on specific practice elements, such as a particular specialty or service line. For instance, a multispecialty group might negotiate a PSA solely for the orthopedic division, allowing the broader organization to retain independence in other areas. This targeted approach enables practices to collaborate with hospitals selectively, balancing autonomy with strategic growth.
Factors to Evaluate When Considering PSAs
Physician groups and hospitals should assess several factors before establishing a PSA:
- The ability to preserve nuanced compensation structures, especially when involving partners at different seniority levels.
- The opportunity for physicians to profit from APP performance, which is more difficult under full employment.
- Maintaining attractive benefits packages and malpractice coverage without full employment commitments.
- Ensuring governance frameworks that protect physician autonomy while fostering collaboration.
Nelson highlights that PSAs often serve as a “bridging” mechanism, helping practices build trust with hospitals before transitioning to full employment if desired. This phased approach can smooth the integration process and support mutual accountability.
Real-World Applications and Success Stories
At Northwest Community Hospital, Nelson notes that about 25% of the medical staff are employed physicians, with many independent providers engaged through PSAs. These agreements enable the hospital to foster collaborative relationships and align goals without forcing full employment, which can sometimes be viewed as a loss of clinical control. Nelson emphasizes that effective governance and shared financial responsibilities are essential for success, including joint review of operational and financial decisions to prevent misunderstandings.
She adds that PSA arrangements often serve as a foundation for deeper integration, with trust built through shared goals and transparent management. When done correctly, PSAs can lead to improved quality outcomes and cost management, all while respecting physicians’ desire for professional independence.
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For more detailed insights into insurance options for practices, referencing a comprehensive guide to insurance accepted by Intermountain Healthcare can be helpful. Additionally, understanding the nuances of provider enrollment processes across states is vital; exploring strategies through navigating UnitedHealthcare provider registration can streamline onboarding efforts. Finally, planning for practice sustainability during travel or practice transitions is supported by a comprehensive overview of medical coverage during travel.
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Note: The evolving nature of physician practice arrangements necessitates ongoing evaluation and strategic planning. Whether considering PSAs, joint ventures, or full employment, physicians and administrators must weigh financial, operational, and clinical factors to craft arrangements that support both practice growth and quality care delivery.