Professional Service Agreements 2017-12-20T22:12:21+00:00

Professional Service Agreements


Professional Service Agreements (PSAs) are contracts between hospitals and the physicians whose practices are based at that hospital. A PSA allows hospitals to obtain services from doctors without violating Stark Law or the Anti-Kickback Statute, and without meeting the employment exception, which often proves to have too rigid of an employment model.

Professional Service Agreements Basics

A traditional PSA, a contract drafted between a hospital and a physician practice, is composed of the following elements:

  • The hospital contracts with the physicians for their services at a fair market value rate. (The hospital is the practice’s sole or primary source of revenue.)
  • The hospital takes over billing, contract negotiations, and collections of professional fees for the physicians.
  • All non-physician providers (staff members) within the practice are also compensated by the hospital.

Determination of Fair Market Value Rate

In order to pay the doctors within the PSA at fair market value, physician compensation is typically based on physician work relative value units (WRVUs) and a conversion factor. The conversion factor must be determined by the various parties in the agreement and can be just for services rendered, or can include extra consideration for the physicians such as administrative medical directorship services.

Benefits to Both Parties


Physicians may benefit from PSAs that allow them to maintain autonomy over working hours and compensation within the practice, yet offload administrative responsibilities such as patient billing and collections, and for negotiating with vendors, employees and suppliers. Hospitals may feel participating in PSAs allows them to take an initial step towards physician practice integration without the full commitment. If a hospital wants physicians in the practice to perform duties beyond providing professional clinical services (e.g. administrative and oversight services) these may be added to the PSA as noted above.

Compensation structure of the PSA can be negotiated to include goals that serve the interests of both parties, such as meeting certain criteria in clinical outcomes, operational efficiency and quality of care. PSAs may also be structured to include other ancillary services, depending on the circumstances and goals of the parties.

Other issues physicians and hospitals should consider when the PSA is drafted are non-compete agreements and post-termination rights.

PSAs are extremely complex, given the legal issues that must be navigated, the variables that must be considered, and the compensation issues that must be negotiated. Whether you are a physician, or represent a hospital, when you need help drafting or reviewing a PSA, our experienced health care lawyer in Dallas, Larry “Max” Maxwell can guide you through the process and be sure your interests are protected.