Hospital owned physician practices has tripled since 2002. Health systems are not effectively managing physician practices due to the lack of focus on important drivers such as compensation models and centralized revenue cycle function and negotiation of health plan rates. Both the hospital and physicians are not happy; lack of ROI for the hospital and physician loss of control and overall burnout. This creates a potential liability and exposure as the hospital is subsidizing the losses generated from the physician practices. Because of this, the hospital then must show the arrangement is fair market value and commercially reasonable. If not met, the subsidies can be found to violate the Stark law and any claims submitted to Medicare in violation of the Stark law are often considered false claims.

Potential Solutions:

To address the above challenges, some alternatives provide for alignment of goals, where hospital subsidies can be eliminated, thereby promoting physician entrepreneurship.  Consider the following options.

  • Joint venture (JV) between the hospital and physician(s) where the practice is jointly owned. The hospital provides management and other administrative services.  This approach works if the JV generates enough income to support compensation of the physician(s) and benefits the management provided by the hospital.
  • Professional Service Agreements (PSA) where the physician(s) are leased by the hospital. Both hospital and physician remain independent and billing for technical and professional remain separate.
  • Co-management Agreement, a type of PSA, that allows the physician to remain independent, but the hospital pays a fixed fee for professional and certain management services. The arrangement allows for alignment between the hospital and the physician on quality and safety goals. In addition, is also allows for incentives on quality outcome.