The Law: Professional Services Agreements 101

December 15, 2008

So, you’ve decided to contract out your expertise to practices as well as hospitals. Great. But do you know what your professional service agreement should look like? Here’s the scoop.

Remember the Columbia Record Club? Boy, what a deal. After signing on the dotted line and mailing in the postage-paid card, you received TEN FREE RECORDS! Your only obligation was to buy just three more LPs (or cassettes, or eight-tracks) that would be automatically sent to you within that year. Strangely, these subsequent offerings were rarely of interest to you. After racking up scads of automatic-purchase fees - and a pile of music you hated - you finally canceled your membership. In writing. With 30 days advance notice. To an address that took a magnifying glass to find, even with your young eyes. What a complicated pain.

But who was to blame? You. The terms were all there. Did you read through them carefully to make sure the contract truly worked for you before you signed up? Nope.

Thus, a lesson learned.

Today, you’re considering contracting with a physician group or diagnostic imaging center. Just like the record club, the contract will bind you and a business together. This time, you intend to do it right. To do so, you need to set up a mutually beneficial professional services contract. Here’s what to look for.

First, the easy stuff

Expect much of the professional services agreement to be straightforward, although there’s no such thing as a boilerplate in this case, says Todd Rodriguez, a partner with nationwide law firm Fox Rothschild.

Still, there are some more-or-less standard terms you’ll want clearly spelled out in your contract. Make sure these issues are addressed:

  • Compensation - Will the work be performed on a per-service rate, or on a flat hourly/weekly/monthly rate?

  • Turnaround - What is the standard amount of time you have for a read? Make sure it’s reasonable, considering your increased workload. And what about “stat” reads? Can they be oral to expedite the process? If so, who will do the subsequent transcription?

  • On-call - Are you expected to be available 365/24/7? Clearly dictate the scope of your availability.

  • Staffing - How much new work are you anticipating from this new client? Will you need to hire another radiologist to meet the new demand?

  • Qualifications of interpreting physicians - Must all radiologists performing the reads be board-certified, or is board-eligible OK? Are there other necessary qualifications?

  • Physical presence - Will you do the reads onsite or remotely? Will you supervise the actual tests as well, or simply render the interpretation? This may or may not be required, depending on the group. If you’ll be working remotely, how will the reads be transmitted - telephone, fax, e-mail, or another method?

  • Proof of liability insurance - Obviously, this shields you if your practice commits a medical error. But you’ll want the imaging center to show proof as well.

  • Independent contractor status - Including this will help to segregate the liability between the two parties.

  • Nonsolicitation clause - This means that the imaging center cannot solicit your group’s employees while an agreement exists between you, and perhaps for a certain amount of time after the contract terminates.

  • Credentialing provision - Is your group properly credentialed to provide services under agreements that the diagnostic facility or group has entered into contract with? You don’t want to go through all the trouble of setting up a working relationship to then find out you can’t read for the bulk of that center’s patients.

A little trickier

Other issues require more attention. Not exactly red lights; maybe yellow, for caution. Take time to consider these points carefully before blithely signing your name:

Restrictive covenant - This section states that if relations terminate between you and the facility, then you are precluded from performing radiology services within a specified radius of the imaging facility for a certain amount of time. Essentially the reverse of the aforementioned nonsolicitation clause, a restrictive covenant protects the imaging facility from losing its patients to your new client. Typically, the restriction is for about a year, but it could be as long as five years. It all depends on the market conditions in your area, and which side - the field of radiology or the imaging facility business - is experiencing a glut of competition.

Note that a restrictive covenant clause is not necessarily “bad;” the other party has a right to protection as much as you do. But carefully examine the exact terms of the clause. They may be appropriate, says Rodriquez, but “you must think very carefully whether such a covenant will preclude you from earning a living.”

Suboptimal image proviso - This clause dictates what to do if you receive an unreadable image. Obviously, you wouldn’t want to render an interpretation on such an image and end up liable for missing something. It makes sense that you’d immediately alert the image center (specifying in the contract exactly what “immediately” means, of course) that you’re unable to proceed with that case. But what then? Does the imaging center then cover the cost of repeating the test? Every time? Is there a limit on how many images you can decree unreadable before you have to start sharing the “re-test” costs? “The imaging center may object somewhat [to the proviso],” says William Spratt, a partner with K&L Gates law firm, which has offices in 24 cities worldwide, “because they have to get the patient back in. But it’s in the best interest of all parties. And the patients appreciate the fact that quality is high.”

Contract renewal/termination - This section tends to get overlooked, especially if the parties know the contract self-renews through an “evergreen” clause, unless one side takes steps to terminate. There’s nothing inherently wrong with an evergreen clause, as long as you are aware it exists and you know when and how to take action if you decide to terminate.

To begin analyzing an evergreen clause, consider how long the initial contract should be. “Generally, you don’t have radiologists just sitting around waiting for assignment because of short-term contracts; that’s very disruptive,” says Rodriguez. “But if it’s a new imaging center, you’ll want an initial term of at least one year, and then after that revisit and reassess.”

Hopefully, your new relationship will yield a bounty of work. An evergreen clause keeps the paperwork down, because similar to a “regrets only” RSVP, you only have to take action if you want to bail out; otherwise, the legally binding assumption is that you’re raring for another term.

Put a “give-notice” timeframe in the contract - generally 90 days before the renewal date. Specify that the termination notice must be in writing on paper - not e-mail or instant messaging or any other potentially fuzzy communication conduit. Yes, these other methods are theoretically legal, but who wants to risk the he-said/she-said predicament?

The advantage of a 90-day notice is that both sides have a chance to step down the arrangement and minimize both financial losses and patient ire. “The expectations should be clearly set forth so patient care isn’t compromised,” says Spratt.

But if everybody’s happy? Then just keep on keepin’ on, business as usual.

Licensing - Obviously, you need to be licensed. But this can get complicated if you’re constructing a teleradiology agreement, where you perform reads remotely. “Many times these deals transcend state lines,” says Hayden Wool, a partner with Garfunkel, Wild & Travis in Great Neck, N.Y. Do you need to be licensed in the imaging facility’s state? Yes. No. Maybe. “There’s no one rule in all 50 states,” says Spratt, whose law firm researched this exact question. “They’re slightly or even radically different across all states. In some states, if a radiologist renders more than a certain number of reads for an out-of-state practice, then the radiologist must be licensed there.”

Take time to find out what the specific laws are where you’re reading films, both inside and across state lines.

The 600-pound gorilla

Billing is the most important - and most complex - issue that must be mapped out to the smallest detail. Specifically, who will do the billing? Will one side reimburse the other, or will both sides bill separately?

There are a myriad of ways to set this up, says Spratt. “The radiology group would bill for interpretation, while the physician group would bill for the technical part of it.” This is called split billing. “Most want to do it this way, but there are contractual issues,” says Spratt. For example, an independent imaging center might have to bill globally, he says, meaning that it does all the billing and then reimburses the radiology practice. This is common for managed care. To have a relationship with this center, the radiology group would have to reassign its Medicare billing rights to that group.

Why does all this matter so much? Because of the Stark and ant-kickback laws that frown on self-referral and shady fee arrangements. Failing to think your billing arrangements through can land you squarely in a morass of compliance issues.

For example, if you’re a radiology contractor for an imaging center that bills to Medicare, then generally you must be onsite. But this “flies in the face of teleradiology,” says Spratt, which is becoming more and more popular. Radiology services can be scarce in parts of the U.S.; teleradiology helps solve this problem.

Markup is another confusing part of navigating billing regulations. The Centers for Medicare & Medicaid Services recently published some new anti-markup rules, Spratt continues. “Those rules were intended to prohibit a physician group from purchasing a diagnostic interpretation and marking up the price. CMS had to suspend enforcement of those regulations because there was so much confusion and conflict with these regulations.”

The onus is on CMS to re-examine its current statutes and clarify them, but it’s a work in progress. “CMS has attempted to clarify relationships between radiologists and physician practices because there seems to be a difference in interpretation of the Stark law and their own reimbursement guidelines …. [They] understand that it’s really confusing,” says Spratt.

The federal and state antikickback statutes are also areas fraught with legal quicksand. “I’m afraid a lot of physicians and even attorneys confuse antikickback laws with Stark,” says Spratt.

Both the federal antikickback statute and the Stark law prevent inappropriate profiting through self-referral. But there are definite differences:

The antikickback statute, a criminal statute, prohibits a physician from accepting remuneration for health services in such a way that it would bring referrals back to him. He may not, for example, waive all copays, because then patients may choose to go to him because of this perk, and not because of the care received. The federal version of the antikickback statute is focused on Medicare and Medicaid. State statutes address all payers. These laws vary greatly from state to state.

The Stark law, however, is a civil statute. Self-referral in this case means routinely pointing Medicare or Medicaid patients to other facilities where the physician has a financial interest, either through ownership or a compensation arrangement. Such referrals are prohibited for a very specific list of health services; radiology services are one of these.

“[Say] there’s a compensation agreement between these two parties,” Spratt says. “If the compensation arrangement is below fair market value, there’s a possibility that the parties are involved in fee-splitting. Physicians face exposure on a number of levels, so it’s important that the compensation arrangement is at fair market value, or a split-billing arrangement. Obviously, if both parties are billing for themselves then there is no remuneration.”

Don’t go it alone

Don’t underestimate the convoluted twists and turns of the Stark and antikickback regulations, or all the other aforementioned concerns. Take the time to craft an agreement that truly works for you. “You don't want to sign a contract you can’t live up to,” says Rodriguez.

Or one that you can’t live with. “What often happens,” says Wool, “in an effort to please their referral sources, is [a radiology group] will offer an agreement without specifying the particulars.”

But knowing exactly what to put in and what to omit can be like navigating a minefield. Better to shell out some bucks and have a healthcare attorney review the agreement before you sign. “These are typically contracts worth $100,000 or a million-plus. The couple hundred dollars you spend, it’s worth it; it’s your livelihood,” says Rodriguez. “People come to me and say, ‘How can I get out of this contract?’ and it’s difficult. Your negotiating strength is strongest before signing.”

Take time to hammer out all the terms, including the exit strategy, before the service starts, Rodriguez advises. “It’s a lot less expensive to do it right the first time.”

Shirley Grace is a former associate editor for Physicians Practice. She can be reached via

This article originally appeared in the December 2008 issue of Your Best Practice.