The American health industry has recently shifted from a fee-for-service (FFS) model to the payment model that reimburses and rewards physicians for taking a holistic approach to care. The new reimbursement model is known as “value-based care” or “free-for-value.” It aims to eliminate the FSS model which involves charging the insurers and patients solely on the number of procedures or treatments performed.


Value-Based Care Vs Fee-For-Service—what are the key differences in each of these systems? What is the origin of value-based care? The aim of this post is to help the US healthcare professionals, medical coders, and billers to know everything about the two models with the transition in full swing.

What Is Value-Based Care?

American healthcare professionals are reimbursed with incentives/ payments for taking a holistic approach to care at a low cost. This system is known as the value-based care system in the US, which demands that clinicians use best practices while treating patients. This payment model compels the doctors to prioritize the quality of care provided to patients. In this philosophy of care, doctors focus on the quality, efficiency, and overall outcome of care and are paid accordingly.

When successful, the paying for performance further motivates the healthcare team to intentionally consider providing quality care at a low cost and to improve the patient’s healthcare outcomes. Thus, the value-based care model encourages effective coordination and communication among physicians across specialties.

What Is Fee-for-service?

Fee For Service

Fee-for-service or FFS is the healthcare payment model where physicians and clinicians are paid based on the number of services, treatments, and procedures that they provide to patients. In this healthcare model, medical professionals are compensated by government agencies and insurance companies every time patients have appointments/surgical consultations/hospital stays. Healthcare professionals are reimbursed regardless of whether the outcome of the test or procedures is positive or negative. FFS is the traditional payment model that unbundles the medical services involved to pay separately for each service availed.

Fee-for-service vs. Value-based Care: What’s The Difference?

In the FFS model, the cost of the care is determined by what the commercial payers or the third-party payers would pay in the private market and the percentage of what Medicare would pay for similar services. In order to pay separately for each service, the rate of the services is also unbundled. FFS is also known as volume-based service because the healthcare providers receive payments for offering services that a patient might need. The quality and type of services provided to the patients in this system do not hamper the incentives that a clinician may receive.

FFS compels clinicians to worry about the number of patients cared for rather than the patient’s health outcomes. Profit turns out to be the main priority for healthcare professionals instead of the value provided to the patient. Speeding through patients appears to be the root of success for the medical professionals, who measure the success rate. Thus, there is more focus on profit in comparison to the cost of each service.

On the contrary, the value-based care model focuses on providing specialized care to the patient. This model is also known as accountable care as it focuses on quality services and getting value from it. The value-based model reimburses physicians for providing appropriate, coordinated, and efficient care to the patient. Payments are also based on other aspects, such as cost reduction, which shifts the attention to preventative care.  Value-based care is comprehensive and coordinated but FFS is fragmented and not well coordinated as the physicians get each claim processed in the fragmented network.

Problems with Fee-For-Service Healthcare

The FFS reimbursement model compels healthcare providers to order more tests and procedures, even when not needed, to satisfy the lure of more pay for performance. These additional medical procedures may not be supported by evidence-based data. Unlike value-based care, FFS does not ensure a level of quality in care services because the incentives are based on the quantity of the services offered instead of quality. In short, the healthcare industry is spending a greater amount using the FFS model, although patient outcomes are not improving.

In the FFS or traditional healthcare model, patients feel confused and frustrated. Patients are left alone to manage their own care path or to handle the shift from one specialist to another or from the primary care ward to the surgical ward. Surgeons and specialists keep working independently as they do not receive incentives for coordinating patient care across the healthcare continuum. Any chaos is due to the lack of the same patient data with all the members of an interdisciplinary team.

Why Value-Based Care Is Better than Free-For Service?

Reimbursements Care Model

The federal government has designed the value-based care to reverse the effects of the increasing cost variations for procedures and tests due to FFS. This model rewards physicians for cooperating with patients during appointments and consultations. Incentives and rewards for coordinated care, in turn, keeps the patents relaxed and healthy. Since value-based care emphasis on the advancing the quality of care this, reimbursement care model has the potential to drive down the healthcare costs besides improving the patient outcomes.

Value-based reimbursements motivate clinicians to connect with patients and provide care appropriate to each individual’s circumstances. It is beneficial for patients as healthcare professionals are able to evaluate the care process, patient outcomes, and data. They align their efforts with other members of the interdisciplinary team and embrace the team approach to healthcare. This model allows patients to receive more cost-efficient, coordinated, and effective care.

Unlike FFS, value-based care increases the patient’s access to appropriate care and the organization’s accountability for cost control and gains. Thus, the model facilitates the implementation of “best practices” and improves the health of an individual patient as well as communities.

The value-based payment model has established a strong foothold in the healthcare industry. The system of incentivizing quality and cost-efficiency has led to structures that are rewarding medical and care professionals for appropriate, effective, and coordinated care. However, FFS fails to incentivize performance for best practices regarding value.

Types of Value-based Care

1. Pay-for-coordination

Primary care physicians are reimbursed for coordinating patient care between multiple care providers. This type of value-based care promotes efficient and effective care as the care providers are able to manage a unified care plan for patients. This type of care model ensures that all the departments share the risks and keep the costs low while focusing on quality. The Patient-centred Medical Homes (PCMH) model is an example of pay-for-coordination. This type of value-based care is beneficial for providers who are confident about keeping the costs low.

2. Pay-for-performance

There are certain benchmarks set for providing quality and efficient care. Physicians receive an incentive for meeting the set benchmarks. The Hospital Readmission Reduction (HRR) program is an example of a pay-for-performance program. By linking payment to the care quality excess, hospital readmissions can be reduced. This type of program supports the national goal of improving healthcare for people and their communities in America. This type of value-based care benefits care providers who are looking to enhance physician engagement and reduce medical errors.

3. Episode-of-care Payment

Episode-based payment or the bundled payments is the single payment for the services offered during the whole episode of care. When treating a specific condition, say hip replacement, which may include different members of the interdisciplinary team and various settings of care or procedures, care providers are collectively reimbursed for the expected cost. This is known as bundled payment because there is no separate payment made to the surgeon, anesthesiologist, or the hospital. This type of value-based care is beneficial for providers focused on metrics but are efficient (e.g., Advanced (BPCI–Advanced) model).

4. Shared Savings Programs (Upside and Downside)

In this type of value-based care, physicians and specialists share the load with the entire organization. Such sharing helps save healthcare cost as the money saved in one healthcare setting can be utilized for covering the cost of another branch or setting. With such cost-sharing, it is easy to reach a hospital’s budget goals. This type of value-based care is beneficial for organizations unwilling to make huge investments in technologies. Population health management is easy because physicians form entity groups. Coordinated team care ensures the quality and efficiency of care. Moreover, the realized net savings are given back to the care providers (e.g., Accountable Care Organizations (ACOs)).

Benefits of Value-based Healthcare Delivery

A complete transition from the FFS model to the value-based care will be a boon for the US healthcare industry owing to its benefits. The benefits of value-based reimbursement include

  1. Improvement in patient healthcare outcomes
  2. Increase in care options for patients
  3. Attracting more patients
  4. Low costs of healthcare
  5. Reduction in medical errors
  6. Increased patient satisfaction
  7. Reduction in hospital readmissions

Value-based Care vs. Fee-for-service: Transition Challenges

Transition Challenges

The key transition challenge involves understanding the true cost of treating a specific health condition. Having sophisticated accountability capabilities is important to determine the true costs of delivering care.

A further challenge involves data collections and shifts in billing and collection. To find success with shifts in processing and billing during the transition, healthcare organizations must invest in data analytics. It allows an effective balance of value-based payment contracts.

Next is the lack of a standard protocol to integrate value-based care in the current healthcare system. This means that there is a need for more evidence-based research and data that helps in developing an organizational structure that will have effective protocols, incentives, and training.

How to overcome these challenges? The care providers must come up with innovative solutions and find out the service line that will keep the cost below the cost of competitors. Having evidence-based research on pioneer models will help provide the value-based care best aligned with organizational goals.

Care providers must understand the unique patient needs to develop the appropriate payment model. Collaborating with other care providers will cut the cost but tracking the quality measures can be expensive. However, investing in data sharing and integration will facilitate the free flow of information among network providers.

Wrapping Up

There is no doubt that value-based healthcare wins in the fee-for-service vs. value-based care debate. Value-based healthcare is inevitable considering the rising healthcare cost. With growing health awareness among people and a rise in demand for high-quality care, the healthcare industry must completely shift to value-based care.

Value-based care has got its own challenges but many healthcare professionals are optimistic that it will provide better overall care for patients. However, it may take some more time before being implemented on a national scale.

Meanwhile, clinicians must focus on wellness and preventative health instead of individual care episodes. In addition, the value-based payment models must track deaths due to chronic conditions like heart failure, pneumonia, and penalize the facilities with high mortality rates.

Do you want to remain competitive in today’s market? Then change the approach and focus on wellness and preventative health instead of individual care episodes!!!

Value-based Care

Author's Bio

Shailendra Sinhasane

Shailendra Sinhasane (Shail) is the co-founder and CEO of Mobisoft Infotech. He has been focused on cloud solutions, mobile strategy, cross-platform development, IoT innovations and advising healthcare startups in building scalable products.