Understanding Fee-for-service vs Value-based care

Ashleigh Knowles
Ashleigh Knowles
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Introduction

Fee-for-service and value-based care are the two dominant models utilized to deliver healthcare to patients. Whilst historically fee-for-service was the more widely adopted system, the healthcare industry is beginning to see a rise in value-based care models. In fact, the Health Care Payment Learning and Action Network reported that 36% of reimbursement contracts in the US are now value-based, which is a significant increase from previous years. 

You might be wondering what the differences between these two models are, and which one is better for patients and practitioners - and this is where we can help. We’re going to unpack fee-for-service and value-based care to ensure that your business is making the best decision in regard to your online payment methods and general reimbursement structure!

What is value-based service?

Value-based service, as is indicated by the name, prioritizes healthcare services based on their value to patients, rather than volume. One of the most prominent elements of value-based care is the increased responsibility and autonomy it grants patients, allowing them to access more personalized healthcare solutions at fees that they have determined. 

Whilst this may sound confusing, particularly if you are used to a fee-for-service model, the concept is actually pretty simple. Say a patient at your practice has diabetes, a value-based service model will ensure all of your healthcare needs are being met without needing to go to multiple clinics. The integration of care will target various elements of health, including diet, exercise, medication, and management. Eliminating unnecessary procedures, tests and appointments allow both the patient and the practitioner to save money whilst optimizing the likelihood of a healthy outcome. 

What is fee-for-service?

Alternatively, fee-for-service payment models refer to a system where physicians are paid a set fee for the services that they deliver. This payment model allows physicians to bill for every procedure, test, or appointment that they deliver, without taking into consideration the outcome of these services. 

Whilst this can be a simple method for organizing payments, especially given the fact that the fees are predetermined, it prioritizes quantity over quality. Without adequate insight into the resulting health of the patient, it can be difficult to determine whether the services were actually successful and/or necessary. 

Fee for service vs value-based care - What's the differentiating factor?

The healthcare industry is currently witnessing a gradual shift away from fee-for-service models and towards a system of value-based care. While this change is positive, as it supplies a method for saving money and improving the quality of healthcare for patients, it also means that it has become extremely important to properly understand certain differentiating factors.

To make it easier for you, we have created a table that breaks down and explains the various aspects of fee-for-service models and value-based care. Regardless of whether or not you have an understanding of these systems, it is always a good idea to brush up on your knowledge and see if you can learn anything new. 

Fee-for-service

  • Has an assigned reimbursement amount for each service delivered by the physician. 
  • Regardless of whether or not the service improved the health of the patient, the physician will be reimbursed the set amount.
  • Healthcare practices and individual physicians are driven to provide as many services as possible, including appointments, tests, evaluations, and procedures. 
  • Given these factors, using a fee-for-service model can lead to unnecessary procedures when less expensive options are available. 
Fee for service table

Value-based care 

  • The reimbursement amount is based on the quality of care delivered to the patient and their health outcome.
  • Healthcare practices and individual physicians are driven by ensuring that their services are specifically required to achieve high-quality health outcomes. 
  • There are different methods of implementing value-based care to ensure that payments are appropriate. We will explain these in-depth shortly. 
  • Because value-based care aims solely at improving health outcomes based on individual needs, it can save money, for both patients and physicians.  
Valued based care table

Traditionally, fee-for-service models have been the most commonly implemented system of payment in healthcare practices. Amongst other reasons, this is due to the fact that it simplifies the highly complex reimbursement process for healthcare practices. However, the healthcare industry is revolutionizing and we are seeing a significant shift to value-based care solutions and attempts to individualize treatment plans. Whilst it can be difficult to wrap your head around the ins and outs of these models, furthering your knowledge will help guarantee you are delivering high-quality health services and prioritizing patient needs.

Typical challenges with fee for service in healthcare

We’ve touched briefly on how a fee-for-service model can lead to unnecessary procedures and tests, but it is necessary to have a closer look at the challenges of this system in order to understand exactly why value-based care is so important. Some of the various challenges that have been associated with using fee-for-service models include the following: 

Expensive Insurance: Fee-for-service requires indemnity insurance, which is often the most expensive plan. 

Difficulties for patients: Patients are sometimes required to pay for the services that they have received upfront if they receive fee-for-service care, which can cause financial strain. 

Reduced quality of care: Because of the costs associated with fee-for-service models, many patients try to cut down on the number of times they visit a healthcare practice, even when treatment is necessary. Unfortunately, not only does this mean that physicians don’t get paid, but it also compromises the health of patients.  

The types of value-based healthcare

Whilst the challenges that are associated with fee-for-service models can be problematic for both patients and practitioners, a different (and improved) model can be implemented as an ideal solution: value-based care. 

So how exactly does this work for different healthcare practices? One of the biggest concerns regarding value-based care is a lack of understanding of how physicians get paid. This concern is derived from the fact that the model is based on health outcomes, which is a metric that is difficult to measure. Nevertheless, different payment methods (all utilizing value-based care) have been developed with various types of health institutions in mind, ensuring that there is a suitable solution for you, regardless of what type of business you operate. 

Performance-based payments

Performance-based payments, as the name suggests, organizes their payments to physicians and practices depending on performance measures. These can differ, but may include reducing the number of readmissions and improving general preventative care methods. 

Bundles

Bundled payments require the healthcare provider to estimate an approximate cost of what a patient will be expected to pay for several different tests, appointments, and procedures that are bundled together. Following treatment, any discrepancy in the predicted cost and actual cost is shared with the provider. Bundles help to cut back on unnecessary procedures whilst ensuring patients receive appropriate care.

Shared savings

The shared savings payment model encourages healthcare institutions to come together as an AOC (Accountable Care Organization), who are then responsible for finances. Any money saved can be redirected into different departments of the AOC that may require more funding etc.

Capitation 

The capitation model of value-based care is based on the patients of a healthcare institution sharing the financial burden. Each patient is required to pay a set amount to the practice per a set of time regardless of whether or not they received procedures. Capitation allows practices to reduce the cost of their services without compromising the quality of care delivered to patients. 

Advantages of value-based healthcare system

In addition to having numerous different structures that make it applicable to a wide range of healthcare businesses, value-based systems have many different advantages for both patients and practitioners:

Reduce costs: One of the most significant barriers preventing patients from seeking medical treatment is the cost. Value-based systems eliminate any unnecessary procedures and have a larger focus on preventative care. These factors help reduce costs and make it more affordable for patients to receive necessary healthcare. 

Reduce medical errors: Not only are medical errors extremely costly, but they can be detrimental to patient health. Value-based care works to eliminate any unnecessary and potentially harmful treatments, improving health outcomes and reducing medical errors.

Improve overall health: With a greater focus on preventative measures, value-based care can significantly reduce the number of people requiring treatment in the first place. Education around healthy habits (e.g. smoking, eating, and drinking) helps to ensure people are kept informed and contributes to a healthier, happier population. 

Challenges of value-based healthcare system

It would be remiss of us to mention the advantages of value-based care without touching on the challenges, and unfortunately, these challenges do exist. 

Resources:  Lack of resources is one of the biggest challenges that face all healthcare businesses when it comes to introducing new systems. Unfortunately, many practices have limited internal funding that prevents them from updating their business structure and investing in resources like new technology and streamlined administration. 

System integration: Having an integrated system is one of the most important aspects of using a value-based care model, but many practices fail to achieve adequate integration. This can be a result of many factors, but is often influenced by how quickly technology is advancing, and how difficult (and expensive) it is to stay updated with these changes.

Challenges in transitioning from fee for service to value-based healthcare

Fundamentally, the biggest challenge associated with transitioning from fee-for-service to value-based healthcare is simply to do with the change. As the demand placed on the healthcare system continues to grow, and more and more physicians are experiencing burnout, it becomes harder to implement a system change. 

Additionally, even if a healthcare practice has a fully integrated system and abundant resources/funding, the transition to value-based care will inevitably increase the risk of financial loss. Whilst research suggests that a value-based care model is more likely to reduce costs for healthcare businesses, the possibility of it doing the opposite is often enough to prevent any attempt at change. 

However, whilst these challenges do exist and should be taken seriously, there are definite solutions that will help your practice make a smooth transition to value-based care. 

What does the future of fee for service look like?

The future of fee-for-service plans looks reasonable, despite it coming under fire for excessive use at times. Specifically, there have been occasions where health insurance companies and government programs, amongst other third-party payers, have felt overwhelmed by the system. Criticized for overexerting Medicare and Medicaid, fee-for-service plans have had their fair share of scrutiny. 

However, despite the plea of policymakers, the fee for service still remains positive for those such as yourself, where it can elevate the quality of your service and smoothen your financial flows and budget. It is highly unlikely that the fee-for-service model would be disregarded entirely, as many healthcare practices continue to accept bundled or capitation payments. Several organizations still pay their healthcare professionals and physicians on productivity and volume bases, and so in this regard, this model will continue to be used throughout healthcare. Admittedly, its popularity has dwindled with value-based healthcare on the rise, but depending on the needs of your practice, it can certainly still reap value. Some of the best providers out there continue to effectively utilize fee-for-service models, so if you’ve been reading this, and the FFS option resonates, then don’t be afraid to incorporate it! 

What does the future of value-based care look like?

Fee for service does have its merits, as mentioned, however, most healthcare professionals would argue that value-based care is revolutionizing the healthcare industry. It is a sustainable model that allows patients to spend more time with their professional healthcare providers, and access healthcare at a low cost. It’s an ideal system and one that is based realistically and is actually attainable for both practitioners and patients. It’s more than a buzzword and is quickly becoming the go-to option when it comes to handling finances for many organizations. 

With increasing investment into value-based care, healthcare practices can become differentiated, and maintain stronger positions within the health market. Given that there are intense healthcare shortages, especially in the aftermath of Covid, value-based care appears to be an incredibly viable option. In fact, in the near future, there are hopes that the adoption of innovative technology will work to automate many processes and activities to reduce costs, and further elevate the feasibility of value-based care. As this model becomes more popular, it is also likely that issues such as transportation and housing will see improvements whilst keeping medical costs low. Social determinants of health contribute significantly to medical outcomes and providers, with many big players recognizing this - and so making the switch to value-based care may prove highly beneficial. 

Concluding thoughts

Both models provide solid options, although it is hard to look past the possibility of more affordable and higher quality of care within value-based care. For patients, costs can be significantly reduced, in addition to physicians. Managing the financial side of a healthcare business is complicated, but with the right systems in place, your practice can guarantee affordable care for patients without compromising the salaries of physicians.

One of the best ways to implement this change is by implementing an integrated system, like Carepatron, that can help streamline administrative tasks, encourage online payments and reduce the likelihood of staff burnout. With the right support, you can ensure that your practice is a part of this positive and meaningful change!

Try Carepatron today and grow your healthcare revenue like never before!

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