Fee-for-Service vs. Value-Based Care: Understanding the Differences

As the healthcare landscape in the US shifts from volume to outcome-based care, medical practices face growing pressure to adapt accordingly. The two primary reimbursement models—Fee-for-Service and Value-Based Care—each offer their own respective pros and cons that practices should consider carefully. Whether you’re partial toward a Fee-for-Service model, a Value-Based Care model, or a hybrid  of the two, it’s important to have a solid understanding of both so your practice can navigate the evolving healthcare system with confidence. 

What is Fee-for-Service?

Fee-for-Service (FFS), also referred to as “volume-based care,” is a reimbursement model whereby providers are compensated for each service they perform, regardless of patient outcomes. The provider submits a claim for each service to the payer (typically an insurance company or government program) who then reimburses the provider according to a set fee schedule. 

The FFS model brings financial stability with its transparent reimbursement structure and payment reliability regardless of patient outcomes. Since FFS typically places no limitations on the type and quantity of services that can be performed, providers have more autonomy to choose exactly how they want to bill different services. 

A Typical Fee-for-Service Workflow

The minutiae of each FFS workflow may differ a bit from payer to payer, but most involve the following steps:  

1. Patient Encounter: The patient receives care (e.g., lab work, X-ray or routine office visit). 

   
   

2. Documentation: The provider documents all services rendered and includes any clinical notes, diagnostic codes, or procedure codes. 

   
   

3. Submission of Claims: The provider’s billing department or EHR system generates a claim and submits it to the payer. The claim must meet all payer-specific requirements for coding, timing, and justification. 

   
   

4. Claim Adjudication: The payer reviews the claim for coverage, accuracy, and medical necessity, then either approves or denies reimbursement based on any fee schedules and internal policies. 

   
   

5. Reimbursement: If the claim is approved, the payer reimburses the provider for each billable unit (e.g., lab work or a routine office visit) based on a predetermined rate. Payments are usually made within 30-60 days. 

   
   

6. Patient Billing (if Applicable): If the service isn’t totally covered, or is subject to deductibles or co-insurance, the patient may be expected to cover the remaining balance. 

   
   

The Downsides of a Fee-for-Service Model

A common criticism of the FFS model is that it offers few incentives for delivering high-quality care, since revenue is tied to the quantity—and not quality—of the services. This can end in patients receiving services they don’t need and worse overall health outcomes than under a VBC model. 

When it comes to reducing overall healthcare spending, FFS has been less than impressive. In fact, costs have increased under FFS while patient outcomes have stagnated. 

What is Value-Based Care?

Value-Based Care (VBC) is a newer reimbursement model that compensates providers based on the quality—rather than the quantity—of services rendered. Because payment under a VBC model is contingent upon patient outcomes, providers have more incentive to keep patients healthy and out of the hospital, which ultimately leads to a decrease in healthcare spending. 

Four Primary Value-Based Care Programs

There are four main VBC programs, which vary in risk factors and complexity, as follows: 

1. Fee-for-Value: Fee-for-Value has the lowest financial risk of all the VBC programs on this list, making it a sensible option for practices who are looking to implement outcome-based care for the first time. 

   
   

2. Quality Incentives: The Quality Incentives program requires that providers meet certain performance-based markers. Failure to meet said markers can result in financial penalties. 

   
   

3. Shared Savings and Risk: With the Shared Savings and Risk program, the practice is responsible for the total cost of care for a certain group of patients. If the costs are managed well (for example, by reducing hospitalizations), the practice is rewarded. If the costs go over the designated amount, however, the practice is penalized. 

   
   

4. Global Capitation: Healthcare organizations using the Global Capitation program are paid a set amount every month per patient under a specific contract or panel. While this program boasts the highest potential for reward out of the four on this list, it also has the highest risk of penalty. 

   
   

The Downsides of a Value-Based Care Model

VBC’s numerous benefits have contributed to its steady growth in popularity over time, but it does come with some downsides that are important to consider, as we outline below: 

Financial Risks

Revenue cycles under a VBC model can be difficult to manage and payments are less predictable, unlike FFS, which has a reliable revenue stream. In many cases, patients may also shoulder the burden of higher out-of-pocket costs. 

Technology Challenges

Transitioning to a VBC model can incur additional expenses for practices since certain infrastructure and technology are needed for measuring patient outcomes accurately. Providers must then figure out how best to closely monitor, parse through, and report patient data in order to meet performance metrics. 

Stay in the Know

Regardless of whether your practice plans to stick with a traditional FFS model, transition to a VBC model, or use a combination of the two, staying current on the latest developments in healthcare will allow you to make informed decisions, provide the best care possible, and maximize opportunities for reimbursement. Leverage a comprehensive Chronic Care Management platform that supports both FFS and VBC while facilitating risk stratification, tracking performance, and coordinating care seamlessly. 

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