Physician Service Agreement 101
A physician service agreement (e.g., employment agreement, contract) is a common form of agreement that is entered into by and among a physician or physician group and one or more health care providers or health care facilities. The purpose of an agreement such as this is to delineate the obligations, covenants and conditions of the parties during and after the term of the agreement. Many of these agreements will outline the expectations the parties have during the term of the agreement, with a specific focus on the compensation and services to be provided by the physician(s). In addition, many agreements will set out the post-employment rights and/or obligations of the physician(s) with respect to non-compete obligations . Physician Service Agreements at a minimum will determine issues such as: On a macro level, these types of agreements are extremely important in that they affect (and in some cases even guide) the management of health care facilities and the providers that operate therein. It is also important to note that in the United States there are federal and state statutes that may come into play when dealing with Physician Service Agreements and the legalities related thereto. These statutes include but are by no means limited to, the federal Stark Law, 42 USC § 1395nn ("Stark") and its corresponding safe harbors, state anti-kickback laws, the federal Anti-Kickback Law, 42 USC § 1320a-7b(b) ("Anti-Kickback Law"), the Employee Retirement Income Security Act or "ERISA", 29 USC § 1001 et seq, IRS Ruling 97-21 and 97-36, HHS OIG Compliant Program Guidance.
Components of a Physician Service Agreement
The essential components of a physician service agreement include terms relating to compensation, duties, termination, and compliance issues.
One of the most important provisions of an employment or service agreement is the compensation provision. This provision should clearly detail how compensation is calculated. Are there bonuses for productivity and collections? Will the physician be receiving a base salary with bonus opportunities? Or will the physician’s compensation be tied to work RVUs, collections, and bonuses? All of this must be clearly spelled out in the compensation provision. Generally, bonus opportunities cannot be calculated based on referrals to other facilities and similar arrangements between the employed physician and the client or client’s affiliates. Certain measures are more "direct" than others and generally, economists will find that "scheduled" measures are more direct than those that are not. For example, a relocation allowance and an employer contribution for COBRA have been described as particularly indirect measures. If your agreement offers the physician any kind of bonus (overtime, productivity bonuses, etc.) those bonuses must be calculated in a manner that avoids violating any federal laws (such as Stark or Anti-Kickback).
Clearly spelled out duties clearly spell out the expectations for both the physician and the client. It is important that these duties be specific and not vague. The phrase "if needed" should not be found in this section (or anywhere else)!
There must be very clear provisions for termination under the agreement and the relationship of the parties. For instance, termination for cause, the inability to move must be clearly defined so that there is no confusion on the part of either party about what qualifies as taking place.
The agreement should include several compliance provisions, including: confidentiality, disclosure of conflicts of interest (financial ties to physician owned entities, including entities that either pays the physician to refer patients to them or that the physician has a financial interest in), annual compliance training, right of audit, etc.
How to Effectively Negotiate Terms
Negotiating the terms of a Physician Service Agreement is a uniquely delicate endeavor, as each party likely has divergent expectations and sometimes competing interests. At the same time, most Physicians enter into these agreements with the expectation that they will be renewed or amended in the future. The question for both parties, then, is how to achieve a favorable negotiation outcome that is structured in such a way as to make future amendments relatively easy to achieve.
For the Physician, the primary goal should be to ensure that the terms of the contract satisfactorily address his or her priorities – in other words, compensation, benefits, call coverage, and so on. Since most Physician Service Agreements require negotiation of compensation, Physicians should take time before any discussion with their employers to determine his or her compensation priorities. This rough idea of low, mid, and high points for compensation can serve as a valuable reference during negotiation sessions with the healthcare practice or organization. The Physician’s negotiating stance should be rooted in parameters for compensation, not solely in a single dollar value.
The success of the negotiation also depends on the healthcare employer’s approach to that undertaking. For some practices and organizations, giving the Physician a wide margin for negotiation and aiming to maintain positive relationships is the preferred strategy. Others, however, may attempt to hold the Physician to a minimum salary or strict non-compete agreement clauses, using the medical marketplace as leverage in these discussions. The Physician must be prepared for each scenario, factoring the confidence of his or her position into the approach to negotiations.
Regardless of the approach and preference taken towards a Physician Service Agreement, the ultimate goal of the negotiation should be the same: a mutually beneficial agreement that satisfies the interests of both parties and avoids future contract amendments. To achieve this goal, the Physician should enter into negotiations with a strong knowledge of his or her priorities, a willingness to make concessions where appropriate, and an awareness of the healthcare practice or organization’s culture. One of the most valuable tools during this process is mutual respect – since Physician Service Agreements are incredibly important to both parties, it serves all sides well to approach negotiations as a cooperative venture.
Legal Matters and Compliance Issues
When entering into a Physician Service Agreement, specific legal requirements must be addressed. Compliance issues with such agreements also arise, and failure to address these matters can lead to significant risks and challenges.
State licensure is key. All service agreements must comply with the state laws where the physician receives and performs services. In most cases, a physician must be licensed in any state where services are rendered, unless the services are deemed to be private in nature (such as phone consultations). Many states encourage physicians to be licensed in more than one state so they can more effectively serve patients across state lines.
Insurance credentialing deadlines. If your agreement requires the physician to have medical malpractice insurance, the physician must carry insurance of sufficient coverage as soon as the effective date of the agreement. Additionally, all state insurance certifications for the physician must be received by the effective date.
Malpractice insurance. The physician is responsible for complying with the governing laws of his or her practice location at all times. The physician must carry medical malpractice insurance in the amounts required by state law, and must carry the insurance for the duration of the term of the agreement.
Federal and state anti-kickback statutes. These statutes prohibit remuneration offered or paid to induce the delivery of services payable by a federal healthcare program. Monetary penalties include fines and imprisonment, and administrative penalties, such as exclusion from Federal healthcare programs. The definition of remuneration under the federal law includes almost any type of payment, directly or indirectly, overtly or covertly, in cash or in kind. It is also illegal to attempt or conspire to violate federal anti-kickback provisions . Additionally, the laws imposes penalties on concerned parties who offer, pay, solicit, or receive any form of payment or other remuneration that makes it possible to receive federal payments in exchange for referrals.
Potential risk areas include offering, giving, receiving, or soliciting any remuneration, directly or indirectly and regardless of the form, in cash or in kind, in the following situations: (1) in exchange for recommending or arranging for the referral of Medicare or Medicaid patients; (2) as an inducement to recommend or arrange for the use of Medicare or Medicaid services or items that are reimbursed in whole or in part by a Federal healthcare program; (3) as a means of validation of eligibility to obtain a license of certification from a state agency. Certain recruitment arrangements also violate the federal Anti-Kickback Statute, such as if the arrangement involves an inducing payment to an existing provider for signing a new contract.
Exclusion from Federal Healthcare Programs (FEHBP). This program was enacted in 1977 by the United States Congress. The FEHBP covers more than 8 million federal employees, retirees, and dependents. The benefits offered by FEHBP are financed by both the Government and participating employees through payroll deductions. Like Medicare and Medicaid, FEHBP is a healthcare program provided through an employer or related entity, and health benefits are provided under a contract between the employer and the United States Office of Personnel Management.
Any excluded individual or entity cannot participate in any Federal Healthcare Program. Also, the excluded individual cannot solicit or receive contracting with anyone who participates in the Federal Healthcare Program. Excluded individuals cannot hold positions with respect to others who participate in the Federal Healthcare Program. Notable here is that both providers and suppliers are subject to exclusion.
Common Challenges and Solutions in Physician Service Agreements
Typically physicians run into an array of issues when forming and carrying out physician service agreements, creating unexpected complexities and hindering their ability to better serve patients. Not only can these usual issues impede smooth operations, they can also waste time and resources.
The following are the most common issues physicians experience when carrying out such agreements: Physicians new and old often face issues regarding the formation of Physician Service Agreements. It is not uncommon for a mistake to be present in an early agreement or even to have the wrong entity receiving payment. One way to address this is by providing a list of all entities performing work at the facility. Once the payor receives this list, it should then be able to easily cross-reference it with the proper tax identification number. Some physicians find that the payor does not want to deal with too many organizations. Since physicians billing under more than one entity have less room to negotiate with a payor and may have to accept all of the payor’s conditions, etc., it is generally not advantageous to use multiple entities. Therefore, to avoid having payors push back over the number of entities eligible for eligibility under a Physician Service Agreement, it’s important to only list the entities that actually perform patient care services under the applicable Physician Service Agreement. Another issue physicians sometimes face is having a proposed agreement drafted by a payor that does not make sense for them. If this happens, let the payor know and request that they modify the proposed agreement. Providing the payor with a reasonable timeline in which they can respond is helpful. Physicians also need to clearly state the reasons why they are requesting changes to the proposed agreement. Obtain explicitly drawn representations and warranties, including: Having language in these representations and warranties to the effect that the individual representative knows that they and the entity have complied with all applicable laws is one way to help prevent issues from arising later on. The parties should also make sure that all parties are in good standing in order to help avoid hardship. Sometimes physicians find that they are dealing with a newer documentation requirement that is being enforced by a changing or evolving government agency. In this case, it is a good idea to try to discover the reason for the requirement and to document that discovery thoroughly in case the payor requests further information or provides little direction. It usually helps to be able to state that the change in documentation requirements is inconsistent with the parties’ understanding of the Physician Service Agreement. It may help to add language specifying the period covered by the Physician Service Agreement. It also helps to clarify what communications occurred between the parties prior to or contemporaneously with the execution of the Physician Service Agreement.
Examples of Successful Implementations
When it comes to physician service agreements (PSAs), the application of these contracts across varying settings can shed some light on their flexibility and importance in achieving organizational goals. Consider the following scenarios:
A standalone facility
A Chicago-based nursing home and hospital formed an integration joint venture in 2016. Before the agreement, the hospital provided backup services to the nursing home on an "as needed" basis, with no guarantee of continuity. After the agreement, however, the hospital and nursing home entered into a PSA specific to the nursing home’s skilled services program. The primary goal was to create a "seamless relationship" between the two organizations, which would create more opportunities for the nursing home to grow its skilled services program, transferring most of the skilled patients from the hospital to the nursing home.
A health system with corresponding skilled nursing facilities (SNFs)
The administrators of a Midwest health system and its three affiliated skilled nursing facilities met in a shared effort to stem declining occupancy rates. The system was losing RN staff to its market competitors, which negatively affected patient care. The solution? To align clinical services across the health system and its facilities. They responded with a unified plan that included PSAs between the various skilled nursing facilities and the system’s hospitals. These agreements provided each physician two calls per week to the SNF, and they implemented a "hospital-employment model" that included quality metrics. This shift allowed them to decrease hospital utilization, while increasing referrals to participating physicians. Patients received better care, and with between $1.35 and $2.33 million saved annually, the SNFs were reincorporated into the system’s overall network. Further, the hospitals enjoyed a 40 percent reduction in SNF readmission rates. As such, the study concludes that "the prospect of improving quality and reducing services could offset marginal reductions in income from [decreased referrals] . "
A multi-hospital system and its SNF
The administrators of a system-wide health information exchange (HIE) made the decision to institute changes to align their medical services, with particular attention to the transition from inpatient to outpatient—or post-acute—care. They initiated shared governance tables to bring together physicians and system staff. This included the development of PSAs between the two hospitals and participating SNFs. These, along with a central intake program that included referral managers, ensured coordination, communication, and patient care for those transferred from the hospitals to the SNFs. The HIE also performed analyses on clinical information. Participation in this type of data sharing program, it notes, provides a means to improve care transitions and outcomes, while lowering costs.
A multi-hospital system consisting of teaching and non-teaching hospitals, and an independent SNF
Prior to the implementation of a shared contract, the administrator of the non-teaching hospital and the independent SNF observed a growing divide between the contracts negotiated by hospitals with GME programs (teaching hospitals) and the contracts negotiated by non-teaching hospitals. The former tended to provide fewer restrictions, while those negotiated by the non-teaching hospitals contained more restrictions. Further, the contracts were generally structured as being separate agreements. This presented a challenge for the non-teaching hospital, as they had minimal influence on the chronic care options provided to the SNF patients.
To address this, the administrator sought to move different service contracts to a common date. In addition, they engaged in discussions about not only serving the interests of the non-teaching hospitals, but the interests of the SNF and teaching hospitals. The result? A single physician services agreement covering the skilled care, outpatient rehabilitation, and laboratory, with pieces of the agreement incorporating elements of the other agreements. The administrator notes that, though the "road was not easy," the entire process was successful in meeting the needs of all parties.