Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid


Examining the Fee-for-Service v. Value-Based Payment Models

By Ryan Mcaskill

- Over the last few years there has been a significant shift in health care payment models. More patients are looking for ways to save on their bills and providers are adjusting operations to meet the demands. Traditionally, the fee-for-service model has been the most popular form of payment as patients pay for the services they receive and nothing else. It also allows physicians to bill for any service they provide. However, it creates a system that promotes quantity over quality.

This is why change is in the air. Specifically, many experts are talking about the need to move away from the fee-for-service platform and adopting one that puts stock in value and quality. Part of the Affordable Care Act is promoting Medicare Accountable Care Organizations (ACOs) and other government and private payer initiatives that share the goal of using better care coordination to treat patients proactivity and avoid expensive hospitalizations at all cost.

All of this has increased the debate on health care reform and put a brighter spotlight on fee-for-service versus value-based payment options.

Why it is important to move away from fee-for-service

The fee-for-service payment model is a delivery system where health care providers are paid for each individual service rendered. This means every office visit, test and procedure performed has a price tag as services are unbundled and paid for separately. It incentives physicians to provide more treatments as payment comes with quantity rather than quality.

READ MORE: How to Prepare for Alternative Payment Model Implementation

The rates charged are set through several factors. These include the costs of providing the service, a review of what commercial payers pay in the private market and a percentage of what Medicare pays for equivalent services.

Because of the emphasis on quantity, there is a belief that eliminating the fee-for-service model would have a significant impact toward driving down health care costs. This is because fee-for-service is fragmented and promotes higher-spending. It provides financial incentive for physicians to maximize the amount and cost of the services that are delivered. At the same time, it does not reward superior care, better outcomes, improved efficiency or care coordination.

Fee-for-service also increases the workload on administrators. Each claim must be submitted, reviewed and processed in a fragmented network of payers and providers. This slows down the process and creates more work.

Earlier this year, the State Health Care Cost Containment Commission, released a report calling for the states to come up with creative, unique approaches to cutting costs and moving toward a coordinated-care model. The federal government can reduce reliance on inefficient and expensive fee-for-service care by encouraging new organizational models that reward coordination, quality and cost management. This happens by supporting states as they create higher-value care in the Medicaid program and puts governors, along with key members of state cabinets and legislatures, are in the best position to lead the charge

“The opportunity exists to transform how health care is delivered,” the report reads. “The goal is straightforward but ambitious: Replace the nation’s reliance on fragmented, fee-for-service care with comprehensive, coordinated care using payment models that hold organizations accountable for cost control and quality gains.”

READ MORE: Best Practices for Value-Based Purchasing Implementation

How value-based is making a difference

Value-based refers to the quality of the care that patients are receiving, rather than the quantity. It takes into account access, price, efficiency and alignment of incentives. In many cases it is sited as one of the best ways to reform health care.

It is a catch-all term for Accountable Care Organizations (ACOs) and other ways of restructuring health care around a system that puts more weight on metrics of quality or the aggregate health of a population rather than how many visits someone makes to the hospital or how many procedures one has. The ultimate goal of the system is to maximize value for patients and define health outcomes achieved per unit of cost spent.

It is a more data driven vision of health care reform that not only improves quality and efficiency, but also reduces costs.

A study early this year conducted by researchers Availity found that 75 percent of providers currently participate in at least one value-based payment models and more than 60 percent expect this model to dominate the future of health care finance. However, fewer than 30 percent believe these schemes offer a good level of reward for the risk.

READ MORE: AMGA President, CEO Donald W. Fisher, PhD, Passes at 71

The Affordable Care Act is promoting the use of ACOs and levies penalties for hospital readmissions to encourage better follow-up care outside the hospital.

There are some concerns to a value-based system. The plan participation rates are higher for providers who work in hospital facilities compared to professional practices. However, more than 80 percent of providers in both groups say one of their main operational concerns is that value-based plans require more staffing and time management. This is because more administrative effort goes into gathering metrics to justify payment.

While providers are not opposed to improving the efficiency of health care, there are concerns of the complexity of the model and have to see the value in the real-world. Hospitals are cautious of reform that targets hospital care as the most expensive mode of health care delivery and therefore something to be minimizes.

Reform will not happen overnight

Replacing fee-for-service payments with bundled payments or capitation would go a long way toward reducing the volume and complexity of billing. However, it will require major strategic and organizational changes in how health care is delivered, measures and paid for, rather than simply incremental improvement of existing practices.

Managing all of these systems at once is creating issues that range from accurate revenue forecasting to workflow integration. Administrative complexity related to managing these solutions could be costly. The unpredictability of the revenue stream could be enough for some hospitals and practitioners to avoid adoption altogether. It will also require a greater investment in automated solutions, workflow tools and EHR systems to promote real-time information access and avoid expensive, manual processes.


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