Understanding Fee-for-service vs Value-based care

Fee-for-service and value-based care are the two dominant models utilized to deliver healthcare to patients. While the fee-for-service system was more widely adopted historically, the healthcare industry is beginning to see a rise in value-based care models. In fact, the annual Alternative Payment Model (APM) Measurement Effort report in 2022 showed that around 59.5% of healthcare payments were linked to value and quality (LaPointe, 2022).

You might be wondering about the differences between these two models and which one is better for patients and practitioners—and this is where we can help with our guide to healthcare payments. We'll unpack fee-for-service and value-based care to ensure that your business makes the best decision regarding your online payment methods and general reimbursement structure!

What is value-based service?

As the name indicates, value-based service prioritizes healthcare services based on their value to patients rather than volume. One of the most prominent elements of value-based care is the increased responsibility and autonomy it grants patients, allowing them to access more personalized healthcare solutions at fees that they have determined. 

While this may sound confusing, particularly if you are used to a fee-for-service model, the concept is pretty simple. In chronic disease management, such as diabetes, a value-based service model ensures comprehensive care without requiring multiple clinic visits. The integration of care will target various elements of health, including diet, exercise, medication, and management. Eliminating unnecessary procedures, tests, and appointments saves the patient and practitioner money while optimizing patient outcomes.

What is fee-for-service?

Alternatively, fee-for-service payment models refer to a system where healthcare providers are paid a set fee for their services. This payment model allows physicians to bill for every procedure, test, or appointment they deliver without considering the outcome of these services. 

While this can be a simple method for organizing payments, especially given that the fees are predetermined, it prioritizes quantity over quality. Without adequate insight into the patient's resulting health, it can be difficult to determine whether the services were actually successful and/or necessary. 

What is the primary difference between fee-for-service and value-based care?

The healthcare industry is gradually shifting from fee-for-service models to a value-based care system. While this change is positive, as it supplies a method for saving overall healthcare costs and improving the quality of healthcare for patients, it also means that it has become extremely important to understand certain differentiating factors properly.

Fee-for-service

• Has an assigned reimbursement amount for each service delivered by the physician. 
• Whether or not the service improved the patient's health, the physician will be reimbursed the set amount.
• Healthcare practices and individual physicians are driven to provide as many services as possible, including appointments, tests, evaluations, and procedures. 
• Given these factors, using a fee-for-service model can lead to unnecessary procedures when less expensive options are available. 

Value-based care 

• The reimbursement amount in value-based care is specifically tied to patient health outcomes, ensuring care quality.
• Healthcare practices and individual physicians are driven by ensuring that their services are specifically required to achieve high-quality health outcomes. 
• There are different methods of implementing value-based care to ensure appropriate payments. We will explain these in detail shortly. 
• Because value-based care aims to improve health outcomes based on individual needs, enhancing patient satisfaction and saving money, 

Traditionally, fee-for-service models have been the most commonly implemented payment system in healthcare practices. Amongst other reasons, this is because it simplifies the highly complex reimbursement process for healthcare practices.

However, the healthcare industry is revolutionizing, and we are seeing a significant shift to value-based care solutions and attempts to individualize treatment plans. While it can be difficult to understand the ins and outs of these models, furthering your knowledge will help guarantee that you are delivering high-quality health services and prioritizing patient needs.

Typical challenges with fee for service in healthcare

We've touched briefly on how a fee-for-service model can lead to unnecessary procedures and tests, but it is necessary to have a closer look at the challenges of this system to understand exactly why value-based care is so important. Some of the various challenges that have been associated with using fee-for-service models include the following: 

• Expensive insurance: Fee-for-service requires indemnity insurance, which is often the most expensive plan. 
• Difficulties for patients: Patients who receive fee-for-service care are sometimes required to pay upfront for the services they have received, which can cause financial strain. 
• Reduced quality of care: Because of the costs associated with fee-for-service models, many patients try to reduce the number of times they visit a healthcare practice, even when treatment is necessary. Unfortunately, this not only means that physicians aren't paid but also compromises patients' health.  

The types of value-based healthcare

While the challenges associated with fee-for-service models can be problematic for both patients and practitioners, a different (and improved) model can be implemented as an ideal solution: value-based care. The following are the different types of value-based payment models:

Performance-based payments

As the name suggests, performance-based payments are organized for physicians and their practices depending on performance measures. These can differ but may include reducing the number of readmissions and improving general preventative care methods. 

Bundles

Bundled payments require the healthcare provider to estimate an approximate cost of what a patient will be expected to pay for several different tests, appointments, and bundled procedures. Following treatment, any discrepancy between the predicted and actual costs is shared with the provider. Bundles help to cut back on unnecessary procedures whilst ensuring patients receive appropriate care.

Shared savings

The shared savings model offers financial incentives to healthcare institutions, encouraging them to form an AOC (Accountable Care Organization), which is then responsible for finances. Any money saved can be redirected into different departments of the AOC that may require more funding, etc.

Capitation 

The capitation model of value-based care is based on the patients of a healthcare institution sharing the financial burden. Each patient must pay a set amount to the practice at a set number of times, regardless of whether or not they received procedures. Capitation allows practices to reduce the cost of their services without compromising patient care quality. 

Advantages of a value-based healthcare system

In addition to having numerous different structures that make it applicable to a wide range of healthcare businesses, value-based systems have many different advantages for both patients and practitioners:

• Reduce costs: Significant cost savings in value-based care systems help remove financial barriers, making necessary medical treatment more accessible to patients. Value-based systems eliminate unnecessary procedures and focus more on preventative care.
• Reduce medical errors: Medical errors are extremely costly and can harm patient health. Value-based care eliminates unnecessary and potentially harmful treatments, improving health outcomes and reducing medical errors.
• Improve overall health: By focusing on preventative measures, value-based care enhances population health management, significantly reducing the number of people requiring treatment.

Challenges of value-based healthcare system

It would be remiss of us to mention the advantages of value-based care without touching on the challenges, and unfortunately, these challenges do exist. 

• Resources:  Lack of resources is one of the biggest challenges facing all healthcare businesses when introducing new systems. Unfortunately, many practices have limited internal funding, which prevents them from updating their business structure and investing in resources like new technology and streamlined administration. 
• System integration: Employing general practice software is vital for achieving an integrated healthcare system, which is essential in value-based care models. This can result from many factors but is often influenced by how quickly technology advances and rising healthcare costs.

Challenges in transitioning from fee-for-service to value-based healthcare

Fundamentally, the biggest challenge of transitioning from fee-for-service to value-based healthcare is the change. As the demand placed on the healthcare system continues to grow, and more and more physicians are experiencing burnout, it becomes harder to implement a system change. 

While research suggests that a value-based care model is more likely to reduce costs for healthcare businesses, the possibility of it doing the opposite is often enough to prevent any attempt at change. 

However, while these challenges exist and should be taken seriously, definite solutions will help your practice transition smoothly to value-based care. 

What does the future of fee-for-service look like?

The future of fee-for-service plans looks reasonable despite their occasional criticism for excessive use. Specifically, health insurance companies and government programs, among other third-party payers, have felt overwhelmed by the system.

However, despite the plea of policymakers, the service fee still remains positive for those such as yourself, which can elevate the quality of your service and smoothen your financial flows and budget. It is highly unlikely that the fee-for-service model would be disregarded entirely, as many healthcare practices continue to accept bundled or capitation payments.

Several organizations still pay their healthcare professionals and physicians on a productivity and volume basis, so this model will continue to be used throughout healthcare. Admittedly, its popularity has dwindled with value-based healthcare on the rise, but depending on your practice's needs, it can still reap value.

What does the future of value-based care look like?

As mentioned, fee-for-service does have its merits. However, most healthcare professionals would argue that value-based care is revolutionizing the healthcare industry. It is a sustainable model facilitated by value-based care programs that allow patients to access healthcare at a low cost and improve their interactions with providers.

With increasing investment into value-based care, healthcare practices can become differentiated and maintain stronger positions within the health market. Given that there are intense healthcare shortages, especially in the aftermath of COVID-19, value-based care appears to be an incredibly viable option. In fact, there is hope that adopting innovative technology will work to automate many processes and activities to reduce costs and further elevate the feasibility of value-based care.

Final thoughts

Both models provide solid options, although looking past the possibility of more affordable and higher quality care within value-based care is hard. For patients, costs can be significantly reduced by additional physicians. Managing the financial side of a healthcare business is complicated, but with the right systems in place, your practice can guarantee affordable care for patients without compromising physicians' salaries.

One of the best ways to implement this change is by using practice management software like Carepatron. This software helps streamline administrative tasks, integrates medical billing software, and reduces the likelihood of staff burnout. With the right support, you can ensure that your practice is a part of this positive and meaningful change!

Reference

LaPointe, J. (2022, November 9). Value-based payment, fee-for-service levels hold steady. RevCycleIntelligence. https://revcycleintelligence.com/features/value-based-payment-fee-for-service-levels-hold-steady

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