Value-based Care vs Fee-for-Service

The healthcare industry is experiencing a transformation involving reimbursement payment models. The conventional fee-for-service (FFS) reimbursement model is slowly being replaced by the concept of value-based care, a reimbursement methodology that challenges the “volume-based care” associated with fee-for-service and encourages healthcare providers to deliver the best quality care at the most reasonable cost, improving the overall value of care.

What is Fee-for-Service?

Fee-for service (FFS) is healthcare’s most traditional payment model where physicians and healthcare providers are reimbursed by insurance companies and government agencies (third-party payers) based on the number of services they provide, or the number of procedures they order. Payments are unbundled and paid for separately, so every time patients have a doctor’s appointment, a surgical consultation, or a hospital stay, these third-party payers are billed for each visit, test, procedure, and treatment provided, even though some of these may not be needed, or supported by evidence-based data.

What is Value-based Care?

Value-based care is a philosophy of healthcare realized when clinicians intentionally consider the quality of care provided, and the overall outcomes of that care, in relation to cost-efficiency. In the value-based care model doctors and specialists consider “best practices” when treating patients, since they are reimbursed for the quality and efficiency of care they provide. Value-based care models encourage a “holistic,” team approach to care, requiring coordination and communication between physicians across specialties. When successful, physician entity groups receive incentive payments for providing better care for individuals at a lower cost.

Types of Value-based Payment Models

Quality and efficiency are the goal of every value-based payment model. There are four conceptual “templates” for value-based care, and each consists of multiple models specific to specialty, episode, and patient population:

  • Pay-for-Coordination: a primary care physician leads and coordinates care between multiple providers and specialists to manage a unified care plan for patients and to ensure efficiency and quality; e.g., the Patient-centered Medical Homes (PCMH) model.
  • Pay-for-Performance (P4P): healthcare providers are incentivized to meet certain quality and efficiency benchmark measures. Physician reimbursements are directly related to achieving these performance measures; e.g., the Hospital Readmission Reduction (HRR) program and the Skilled Nursing Facility Value-based Program (SNFVBP)
  • Bundled Payment or Episode-of-Care Payment: this model encourages quality and efficiency because healthcare providers are reimbursed with a set amount of money to pay for a specific episode of care, such as a hip replacement, and any complications. Providers keep any realized net savings; e.g., the newly launched Bundled Payments for Care Improvement—Advanced (BPCI--Advanced) model and the Comprehensive Care for Joint Replacement (CJR) model.
  • Shared Savings Programs (Upside and Downside): physicians form entity groups and provide population health management. Quality and efficiency are achieved through coordinated, team care and any realized net savings are given back to the provider: e.g., Accountable Care Organizations (ACOs).

View This On Twitter!

How is Value-based Care different from Fee-for-Service?

In the traditional healthcare model, many times patients are left confused and frustrated trying to navigate through the healthcare system alone. For example, patients must manage their own care path, moving from primary care physician, to specialist, and then to surgery center in a way that is often complicated and unpredictable. In addition, patients may see multiple doctors, specialists, and surgeons who do not communicate with each other, or do not have access to the same important, patient data. In the traditional fee-for-service model, providers lack the technology and the incentives to coordinate patient care across the healthcare continuum. Physicians work independently, remaining “siloed” in the fee-for-service environment of rising healthcare costs.

The value-based model of healthcare shifts the emphasis of care from simply reimbursing clinicians on tests and services ordered to rewarding physicians for providing appropriate, coordinated care that keeps patient populations healthy. Value-based care programs are designed to drive down healthcare costs and to improve patient care and population health, by financially rewarding healthcare providers for considering overall patient care, cost- efficiency, and patient outcomes. In the new value-based care setting, healthcare professionals are encouraged to engage with patients, to provide care appropriate to each individual’s circumstances, to invest in new technology, to evaluate processes, performance, and data, and to align their efforts with multiple providers, taking a team approach to healthcare. This shift in healthcare strategy is extremely beneficial to the patient population, because it delivers a connected care experience where patients receive more cost-efficient, coordinated, appropriate, and effective care, improving the health of individuals and their communities.

In spite of the inevitable shift from fee-for-service reimbursement to value-based care reimbursement, Paul Ginsberg, PhD, former Norman Topping Chair in Medicine and Public Policy at the Sol Price School of Policy at the University of Southern California, suggests that “this transition does not mark the ‘death’ of FFS.” He points out that the “FFS chassis is present in the shared savings models,” and he goes on to assert that “the role of FFS is merely being de-emphasized.” The real liability for the fee-for-service (FFS) reimbursement model, compared to its counterpart, is that the fee-for-service model has no mandates or incentives in place to encourage “best practices” regarding value.

There are still hurdles to overcome in the transition from fee-for-service to value-based reimbursement, but value-based care is here to stay, establishing its foothold in the healthcare industry, incentivizing cost-efficiency and quality, and creating structures that reward physicians for coordinated, appropriate, and effective care.


North Texas Clinically Integrated Network, Inc. (dba TXCIN) is a non-profit ACO that began in late 2014. A small group of independent physicians aligned to initiate clinical integration and value-based contracting. Partnering with RevelationMD and its state-of-the art information platform, TXCIN has become the largest independent network of physicians in North Texas.



View Categories
Contact us