A professional service agreement (“PSA”) is generally defined as a financial relationship between a physician practice and a hospital in which the physician practice remains an autonomous entity (i.e. employees of their own PC) but the physicians are compensated directly by the hospital at a fair market value rate.  The fee structure is usually a $amount per wRVU, and the hospital bills and collects for the services.  In many cases, the physician group provides substantially all of the specialty clinical services demanded by the community, while the patient is technically a patient of the hospital.  Negotiating the FMV rate of this contact can be hairy and complex because the PC often has administrative and mid-level personnel involved. 

So, what is the best approach to use to derive a “fair” compensation for a PSA arrangement?  Let’s not forget, “fair market value” means the rate should actually be fair.  And, in this case, fair means “meeting somewhere in the middle”.  Here are the questions, theories, and methods that one should employ to arrive at an FMV rate for a PSA. [click here to read more]

Perspective of the Hospital

  1. What are all of the costs a hospital will incur to search, recruit, hire, onboard, and train a new provider(s), instead of entering into a PSA?
    1. Recruiting fees
    2. Sign-on bonus
    3. Relocation expenses
    4. Training and onboarding
    5. Employer taxes and benefits
    6. Provider compensation
  2. What is the total cost/expense to hire a provider through a locum agency?
    1. There’s usually an 8 to 12-hour minimum.  Can the hospital utilize the provider for the full 12 hours?
    2. What is the travel, lodging, and per diem expense rate?
    3. Locums rates are traditionally much higher than physician pro-rata annual salary.

Perspective of the Specialty Practice

  1. What is the fair and customary markup on the PCs labor cost to lease their providers and administrative staff to the hospital?
    1. Temporary healthcare staffing firms, such as AMN Healthcare Services and Cross Country Healthcare markup their labor costs by around 39%.  A company always pays a premium for temporary or outsourced staffing.  
  2. What is the market compensation rate per wRVU as reported by the big surveys (MGMA and AMGA)?

A thorough FMV analysis calculates the various indications of value from the perspectives and methods, and the FMV rate should fall somewhere in the middle.