In today’s world, a fee-for-service in healthcare can neatly be explained as a payment model where providers are reimbursed for each individual service, test, or procedure they perform.
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By Vellis Team
Vellis Team
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This model incentivizes the quantity of care delivered, as compensation increases with the volume of services, regardless of patient outcomes or overall value. In the following sections, we’ll define how this model functions in practice, compare it to alternative payment approaches such as value-based care, and examine its advantages and drawbacks within the current healthcare landscape. Read on to learn more.
Fee-for-service in healthcare is a traditional reimbursement model where providers charge and receive payment for each individual service they deliver. This includes billing separately for every appointment, diagnostic test, procedure, or consultation, allowing providers to generate income based on the volume of care rather than the outcomes. In contrast, bundled payment and value-based models focus on efficiency and patient outcomes by combining payments for multiple services or linking reimbursement to performance metrics. Effective revenue cycle management healthcare systems are essential in fee-for-service environments to ensure accurate billing and timely reimbursement.
Under the fee-for-service model, billing and payment are structured around individual healthcare services. Each time a provider delivers care, whether it’s an office visit, diagnostic test, or surgical procedure, they document the service and assign a corresponding billing code, typically using Current Procedural Terminology (CPT) codes. The process begins when the service is rendered. The provider or billing staff submits a claim to the patient’s insurance company with the relevant CPT codes. The payer then reviews the claim for medical necessity, coverage, and coding accuracy. If approved, the insurer reimburses the provider according to its fee schedule, and any remaining balance may be billed to the patient. This model often leads to higher administrative demands and out-of-pocket costs, which can raise questions, for instance “What is patient financing”, as patients seek options to manage their expenses.
Undoubtedly there are bound to be a plethora of benefits, here are some of the advantages of fee for service in healthcare for both providers and patients.
Benefits for Providers:
Perceived Benefits for Patients:
Overutilization of Services: Providers may perform more tests or procedures than necessary, driven by volume-based incentives.
Rising Healthcare Costs: This model often leads to higher overall spending without a corresponding improvement in patient outcomes.
Fragmented Care: Lack of coordination among providers can result in duplicated services, gaps in care, and inefficient treatment.
Financial Risks for Patients: Patients may face surprise billing, especially from out-of-network providers, and experience cost burdens due to misaligned incentives that prioritize service volume over value.
Value-based care is a reimbursement approach that ties payments to the quality, efficiency, and outcomes of care rather than the quantity of services delivered. Unlike fee-for-service (FFS), which rewards volume, value-based care emphasizes coordinated, patient-centered treatment that improves long-term health.
Comparison Table:
Aspect | Fee-for-Service (FFS) | Value-Based Care |
Payment Structure | Paid per individual service or procedure | Paid based on patient outcomes and cost efficiency |
Care Coordination | Often fragmented, with limited provider collaboration | Emphasizes integrated, team-based care |
Outcomes Focus | Volume-driven, not outcome-focused | Prioritizes improved health outcomes and prevention |
Alternative Payment Models Include:
Some of the most common healthcare practitioners that use this mode arel:
Surely there is bound to be an impact on providers and healthcare systems, some of it may include:
Provider Behavior
Implications for Hospital Systems:
Implications for Payers:
CMS Efforts to Reduce FFS Reliance:
Pilot Programs and Legislative Initiatives:
Policy-Driven Evolution of FFS:
When FFS May Still Be Appropriate:
Transition Strategies:
It is a payment model where providers are paid separately for each medical service, test, or procedure performed.
It incentivizes quantity over quality, potentially leading to unnecessary treatments and higher healthcare costs.
FFS rewards volume, while value-based care rewards patient outcomes, coordination, and cost-effectiveness.
Yes, especially in private practice and certain specialties, but many systems are transitioning to alternative models.
Yes, many providers use a hybrid model that incorporates both reimbursement types depending on payer contracts.
HealthInsurance: What-is-fee-for-service?
https://www.healthinsurance.org/glossary/fee-for-service/
Science Direct: Fee-for-service – an overview
https://www.sciencedirect.com/topics/economics-econometrics-and-finance/fee-for-service
Prognocis – What is Fee For Service in Healthcare
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