Fee-For-Service vs. Value-Based Care: What are the Differences?

Team Innovaccer
Fri 18 Aug 2023
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In U.S. healthcare, providers operate under two primary models to secure compensation for their services: the fee-for-service (FFS) model, and the value-based care (VBC) model. This blog provides a brief comparison - FFS Vs. VBC - delving into the major differences in the methods. Furthermore, we'll evaluate each model's pros and cons, considering their impact on patient care, health systems, as well as the overall healthcare ecosystem.

What is Fee-for-Service?

The fee-for-service (FFS) model is a traditional method where providers get paid for each individual service they perform, without considering the outcomes. This model encourages providers to offer multiple services as they're paid per instance, culminating in a situation where more procedures and tests are carried out for patients.

For decades, the FFS model has acted as the standard in the U.S. healthcare system, defining the care delivery landscape. While it's undeniable that the FFS model drove medical innovation, growth, and employment opportunities in healthcare, it's also associated with a range of challenges which we will document below.

What is Value-Based Care?

Value-based care, on the other hand, is a payment model where healthcare providers are paid based on the quality of care, rather than the volume. This model incentivizes providers to focus on delivering high-quality outcomes that improve the patients’ health and wellbeing—and in doing so, reduce the total cost of care (i.e., generate value) rather than maximizing the number of services they provide.

Value-based care improves patients’ overall health outcomes and reduces healthcare costs. In this way, value-based care motivates providers to focus on preventive care, chronic disease management, and care coordination. In one of our other blogs, we’ve covered the advantages and challenges of value-based care.

Fee-for-Service vs. Value-Based Care: Key Differences

How do FFS and VBC differ in reimbursement structure?

The difference in reimbursement is the core difference between FFS and VBC. Under FFS, providers receive incentives based on service volume whereas under VBC, incentives are based on value, i.e., meeting quality metrics.

How are the volume and costs of services related to incentives in FFS and VBC?

Under FFS, higher service volume and charges often lead to higher provider incentives. However, under VBC providers must focus on optimization of care delivery at affordable costs. So, optimizing utilization and reducing costs leads to better reimbursements in VBC.

What is the distribution of risk for providers, payers, and patients under the FFS and VBC model?

Providers bear little risk in fee-for-service because they get paid based on each service they will provide. Under value-based care, providers bear short-term risk because costs may exceed revenues as it is hard to predict high-cost outliers.

Payers bear short-term risk in fee-for-service but can increase premiums next year to offset losses. Under value-based care, payers bear long-term risks because providers can increase their contracts at renewal.

Patients bear long-term risks in both fee-for-service and value-based care contracts because payers can increase premiums. But being patient-centric, value-based care contracts are more beneficial for patients in the long term.

Fee-for-Service vs. Value-Based Care: Advantages and Disadvantages

The complete and universal adoption of the value-based care approach isn't assured, its increasing prominence is undeniable. Understanding the benefits and drawbacks of both payment systems paves the way for the widespread adoption of this cutting-edge model, empowering healthcare organizations to achieve better patient care and exceptional outcomes.

Fee-for-Service Value-Based Care
  • An easy-to-understand payment structure
  • Higher reimbursement for increased services
  • Flexibility in choosing treatment options
  • Focus on quality with a patient-centered approach
  • Incentives for collaboration among providers
  • Potential for cost savings and improved utilization
  • Emphasis on preventive care and population health
  • Overutilization of resources to increase the volume of services, leading to higher care costs
  • Less focus on quality and patient outcomes
  • Lack of incentives for providing quality care discouraging preventive care
  • Higher costs leading to poor patient experiences
  • Complexity in designing and implementing value-based care models
  • Financial risk if quality goals aren't met
  • Challenges in outcome reporting
  • Dependence on healthcare IT and data exchange

Fee-for-Service vs. Value-Based Care: Advantages and Disadvantages

How Does Reimbursement Work Under Value-Based Care Models?

Examining the structure of value-based care arrangements shows that reimbursements primarily depend on patient outcomes. Nevertheless, providers are offered a variety of payment models to align with their business objectives.

  • Pay-for-Performance: Providers are reimbursed only after meeting certain metrics for quality and efficiency. 
  • Shared Risk: Financial risk is shared between providers and payers based on predefined quality and cost targets. This includes both Alternative Payment Models (APMs) and Advanced APMs. APMs can be tailored to address particular clinical conditions, care episodes, or entire populations. Advanced APMs are a subset of APMs and allow providers to earn more for taking on some risks related to their patient's outcomes.
  • Shared Savings: Cost savings are shared by providers for delivering high-quality care while reducing costs. 
  • Bundled Payment: Providers receive a single pre-negotiated payment for a comprehensive, standardized bundle of services linked to a particular care episode (such as a knee replacement or maternal care).
  • Global Capitation: Providers receive a fixed payment per patient over a defined period, irrespective of the range of services rendered.

Choosing Between Fee-For-Service and Value-Based Care Models: A Practical Guide

The shift toward value-based care continues to pick up speed, driven by a heightened focus on patient-centered practices. But there's no guarantee that value-based care will be embraced on a universal scale. It's likely, however, that value-based care will eventually overtake the traditional fee-for-service model.

To identify the most compatible route, it's crucial to thoroughly examine the offerings of both models and determine which one aligns more seamlessly with your healthcare organization's objectives.

When considering implementing or enhancing value-based care, it's important to ask these questions while keeping in mind the merits and limitations of each model:

  • What are the positive benchmarks that your current model has accomplished?
  • Is patient satisfaction a consistent aspect of your services?
  • Is your organization's primary focus on patient outcomes or merely incentives?
  • When did your healthcare information technology receive its last update?
  • Is your organization’s HIT system aligned with today’s VBC requirements?
  • Can your organization expedite data readiness?
  • Are your patients equipped with digital tools for reporting quality and experiential outcomes?
  • Do providers and care teams have the necessary insights on care, quality, financial, utilization, and provider performance metrics?

How can Innovaccer help?

Your journey towards value-based care hinges on finding the right data and technology partner who can help you accelerate your digital transformation within the context of today's value-based models. Schedule a demo with our experts to explore how Innovaccer can help your organization create a unified patient record that brings all of your patients’ data together—including social determinants and other data that exists beyond the health system’s four walls—to accelerate your transformation to value and realize improved clinical, financial, experiential, and operational outcomes across the continuum of care.


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