What Is Fee-for-Service vs. Value-Based Care?

The healthcare industry is a complex web of interconnected systems and entities, from insurance payers, to providers and practices, to regulatory bodies, each with its own interests and goals. One goal they share, though, is that patients should receive high-quality, efficient, and affordable healthcare.

While they may at times feel at odds, these separate healthcare entities have been working together to improve care delivery and payment processes to better serve patients. Over the past decade, the healthcare industry has witnessed significant changes in its payment models, with fee-for-service (FFS) and value-based care (VBH) emerging as two primary models.


A doctor discusses payment for medical services with an older patient.

What is a Fee-for-Service Care Model?

According to HealthInsurance.gov, a “fee-for-service” model is a system of health insurance payment in which a doctor or other healthcare provider is paid a fee for each particular service rendered, essentially rewarding medical providers for the volume and quantity of services provided, regardless of their outcomes.

The FFS model incentivizes healthcare providers to offer more services and procedures, regardless of their necessity or effectiveness, in order to increase their revenue. This system can lead to over-treatment, unnecessary tests, and a lack of coordination between healthcare providers.

Pros of Fee-for-Service Care

More thorough care: The primary benefit of FFS healthcare is that it provides patients with access to a wide range of services and procedures. This can be particularly helpful for individuals with complex medical needs who require a variety of treatments and services. 

More autonomy for providers and patients: When employing a fee-for-service care model, providers are free to provide whatever testing or treatment their patient can afford. Patients who prioritize their health more than others are free to request and pay for more tests or treatments to gain as much knowledge of their health as they want. And, for most providers, fee-for-service care is more lucrative.

Straightforward billing and transparency: With fee-for-service care, patients know exactly what services they are paying for and how much they will cost before services are rendered. This can help patients make informed decisions about their healthcare and avoid surprises when they receive their bills.

Cons of Fee-for-Service Care

Exorbitant healthcare costs: FFS can lead to skyrocketing healthcare costs due to its focus on providing as many services and procedures as possible. Because providers are paid for each service they provide, the overall cost of care can be higher than other payment models.

Overprovision and overtreatment: Because providers are financially incentivized to perform more tests and offer more treatments, FFS care can lead to overuse of medical services and unnecessary expenses for patients and insurance companies. This “overprovision” can result in more time and resources required of patients and clinical staff, more medications with harmful side effects, and other consequences.

Less effective care: Without an emphasis on patient outcomes (as with a value-based care model), care plans and treatments are simply less effective. Patients and insurance companies can end up paying more for unnecessary or ineffective treatment options.

What is a Value-Based Care Model?

According to the Centers for Medicare & Medicaid Services, value-based healthcare (VBH) programs “reward healthcare providers with incentive payments for the quality of care they give to people.” There are several programs in the United States that seek to incentivize providers to offer more effective care by compensating based on results.

VBH also emphasizes collaboration between providers in the hopes of improving patient outcomes and benefitting entire communities in the process. By promoting provider collaboration and coordinated care, VBH hopes to distribute patient care among many clinicians to reduce bottlenecks, burnout, and siloed patient data.

Healthcare and governmental organizations have been developing new models and theories for value-based healthcare over the past few decades, with the goals of standardizing diagnostic processes, determining efficacy of treatment options, and sharing data to improve research opportunities.

Pros of Value-Based Care

Improved patient outcomes: Value-based healthcare models prioritize the delivery of high-quality care that leads to better health outcomes for patients. By focusing on patient outcomes, healthcare providers are incentivized to prioritize prevention, early detection, and coordinated care to achieve optimal results.

Increased efficiency and lower costs: Value-based healthcare models encourage healthcare providers to reduce costs by minimizing unnecessary tests, treatments, and hospitalizations. By incentivizing healthcare providers to improve patient outcomes while minimizing costs, value-based care models can lead to more efficient and cost-effective care delivery.

Increased collaboration between providers: Value-based healthcare models encourage care coordination among healthcare providers, including primary care physicians, specialists, and other care team members. By working together, specialists can develop coordinated care plans that address the specific needs of each patient, leading to improved care quality, better overall patient health, and increased data stores for collaborative research on diseases and population health.

Cons of Value-Based Care

Difficulty in measuring outcomes: Measuring and quantifying the outcomes of healthcare interventions can be challenging, particularly for complex conditions or treatments. Furthermore, goals set by insurance payers and regulatory bodies might incentivize providers to focus on specific health criteria at the expense of others.

Additional administrative burden: Determining a patient’s level of health and the quality and value of the care they receive is a collaborative effort between patients, healthcare systems, payers, and quality assurance organizations. The determination of services’ value involves an immense amount of data to be collected, stored, and transmitted safely and securely, per HIPAA regulations.

How To Shift Into a Value-Based Care Model

The move to a value-based care model is growing in popularity. According to a 2022 McKinsey report, private capital inflows to value-based care companies increased more than fourfold from 2019 to 2021. Investors and providers alike recognize the necessity of changes to the fee-for-service model, and solving those issues has the potential to improve patient care — and practice revenues.

Despite the financial risk of changing health management systems to implement value-based care programs, many healthcare organizations and clinicians strive to meet growing demand for affordable and effective care management.

One of the more daunting aspects of making a change to a value-based payment model is the requirement for new technology and IT services, including establishment and maintenance of secure databases. VSC depends heavily on patient data and shareable and secure electronic health records (EHRs) to enable collaboration between providers and reimbursement from insurance payers.

If your practice’s system was built to manage a traditional fee-for-service system, consider updating your system to a more flexible platform that can grow and change with your practice’s offerings.

A medical provider and patient talk in front of a computer displaying medical practice management software.

Benchmark Solutions Makes Changing Workflows Easy

Benchmark Solutions offers a complete and customizable suite of digital healthcare management solutions, including Benchmark PM, Benchmark EHR, and Revenue Cycle Management services.

Our exceptional in-house support team can guide your team every step of the way as you implement changes to better serve your patients and community. If you’d like to learn more about how the healthcare industry and its supporting technologies are changing, let us know.

Contact us for a free consultation.

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