Value-Based Care Vs Fee-for-Service

As healthcare regulations change, so do healthcare provider reimbursement models. Understanding different forms of reimbursement and their advantages and disadvantages can help you better figure out your healthcare organization’s revenue cycle management. The two main models between which the American healthcare network has been fluctuating are fee-for-service (FFS) and value-based care (VBC).


In the fee-for-service model providers and healthcare organizations have been compensated for care provided. It’s the traditional and most commonly used healthcare model. In FFS, healthcare providers are reimbursed based upon services rendered (i.e., appointments, treatments, tests ordered, prescriptions given), regardless of whether that procedure, test, or treatment results in a better outcome for the patient.

This reimbursement rewards providers for quantity over quality. With this payment model, providers might suggest unnecessary tests or treatments when perhaps less invasive, lower cost, and just-as-effective options are available. As government healthcare regulations change and public demands for better quality and easier-pay healthcare grow louder, many are trending away from this model.

Value-Based Care

Due to simpler and higher-quality healthcare services, the value-based care reimbursement model has been growing in popularity among insurers and health systems. For value-based care, as the name suggests, reimbursement is based on the quality of care provided. This reimbursement model compensates providers for the quality of the care they provide, measured by patient health outcomes.

The main focus is on patient satisfaction and positive outcomes and provider are rewarded for effectively managing the health of individuals and populations. Value-based care requires providers to work together to give longer-lasting, more meaningful care by collaborating with a patient’s other care providers to deliver the best health outcomes possible.

In some cases, providers are actually rewarded for outcomes in which patients don’t need to return for more appointments or treatments for a specific medical condition. The Centers for Medicare and Medicaid Services (CMS) offers several value-based reimbursement programs; five to be exact: End-Stage Renal Disease Quality Incentive Program (ESRD QIP); Hospital Value-Based Purchasing (VBP) Program; Hospital Readmission Reduction Program (HRRP); Value Modifier (VM) Program (also called the Physician Value-Based Modifier or PVBM); and Hospital-Acquired Conditions (HAC) Reduction Program. This is opposed to fee-for-service models in which providers get rewarded financially for bringing patients back in, even if provided care is unneeded.

The Transition from FFS to VBC

With the government supporting value-based care through CMS, we can expect to see VBC models becoming more and more popular as time goes on. VBC promotes the further improvement of healthcare policies hence friendlier to patients rather than providers. Fee-for-service models may not be completely on their way out of the healthcare industry, but value-based care models are definitely pushing their way in. Most states government has already begun adopting value-based models, hence making these models more common and easier to navigate.

Transitioning from FFS to VBC may be beneficial in long term, reducing patient stay durations, costs of care, and penalties from payers, but its implementation process can be both time-consuming and costly. According to a recent survey, the healthcare industry is heavily reliant on fee-for-service reimbursement.

Some of the Insights from the Survey Report are as follows:

  • 48% of respondents report that over three-quarters of their organization’s revenue comes from fee-for-service reimbursement
  • 70% of physician practices report over 75% of their revenue comes from fee-for-service reimbursement

The survey report suggests strategic alignment of incentives and a shared definition of value that will enable providers to feel more confident in adopting more complex models of care with varying levels of risk. Without better collaboration between payers and providers, value-based care will not succeed.

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