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Carving out space between employed and independent: Professional service agreements in today’s physician market

Insight Article - December 15, 2022


Partnerships, Mergers & Acquisitions

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While the shift away from independent practice toward hospitals, systems or corporate entities remains a strong force, physicians have more options than a binary choice between independence and full employment.

Recruitment challenges and increasing expenses are key factors that often force the hands of private practice owners to align with or sell to larger entities, noted Justin Chamblee, CPA, executive vice president, Coker Group, during his session with Susan Nelson, MD, vice president of physician operations, Northwest Community Healthcare, Arlington Heights, Ill., at the 2022 Medical Practice Excellence: Leaders Conference in Boston.

Two of the major issues, as Chamblee noted, are:

  1. The dynamic of offering market-based compensation to newly recruited physicians that sometimes exceeds what the long-time physicians at the group have been earning
  2. The financial instability resulting from those economics, paired with rising expenses and lost revenue from reimbursement rate cuts from the government and other payers.
By the numbers 74%25 — Share of physicians employed by hospitals, health systems or corporate entities as of January 2022, per a Physicians Advocacy Institute study $144,000 — How much more Medicare physician reimbursement is when integrated with a hospital system versus an independent group $205,037 — Mean student loan debt for doctors and other medical school graduates
Cuts to the Medicare Physician Fee Schedule (MPFS) conversion factor are having major impacts on physician practices. While some decreases were offset by increased work RVU (wRVU) values, that wasn’t true across all specialties, Chamblee noted. 

“[Specialties] that are highly nonprocedural are the ones that are seeing the most benefit from some of the changes, meaning that the wRVUs are more than offsetting the decrease in the conversion factor,” Chamblee said. “Whereas other procedural specialties are being negatively impacted” on Medicare reimbursement from Medicare. “That decrease can just continue to tighten the financial performance of the practice that has been pushing them toward alignment.”

Those procedural-heavy specialties also expect to take a hit from updates to shared/split visit billing, as they historically have more advanced practice providers (APPs) doing clinical work, with the physician coming in enough to act as the rendering and billing provider to bill at 100% rather than the APP 85% rate. Once new rules that were delayed this past year take effect in 2024, Chamblee expects reimbursement rates to drop as more billings are done at the 85% APP level rather than the physician level.

Assessing options

Chamblee recently worked with a fiercely independent group that was bordering on discussions with a local hospital yet hesitant about shifting physicians into employment — but employment is not the only option for physicians seeking some autonomy and independence.

“They’re leaning toward a professional services agreement (PSA), because that allows the group to maintain some of the feel of independence that they’ve had in the past,” Chamblee said.

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About the Author

Chris Harrop
Chris Harrop
Senior Editorial Manager MGMA

A veteran journalist, Chris Harrop serves as editor of MGMA Connection magazine, MGMA Insights newsletter and oversees several other publications across MGMA. Email him.


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