Fee-for-Service vs Value-Based-Care: What to Know​

The Centers for Medicare & Medicaid Services (CMS) aims to move Medicare users from a Medicare fee-for-service model and most Medicaid users to a value-based care model by 2030. The  goal reflects a broader shift in the healthcare industry, as providers, payers, and policymakers move away from traditional fee-for-service payment models and toward value-based care to help improve outcomes and control costs.

But what is value-based care and what does your rural hospital or health clinic need to do to adapt and be ready? 

This article examines the fee-for service vs value-based care models and answers those questions.

Fee-for-Service vs Value-Based-Care — What Are They?

Fee-for-service (FFS) and value-based care (VBC) are the two models for how healthcare providers are reimbursed for patient care in the U.S.

Fee-for-service care is the traditional care payment model and what most people associate with medical care. The fee-for-service model has been the primary healthcare model in the U.S. for years. But, it’s criticized for its lack of focus on patient outcomes and quality of care.

Value-based care is a newer model that takes a different approach to care delivery and reimbursement. 

Fee-for-Service Care

With fee-for service, the patient (and their insurance company when applicable) pays a fee for every service received even if all services are grouped on a single bill. It pays for volume over potential value. Payments are made after the service. FFS doesn’t incentivize providers to improve quality or efficiency. Reimbursement is tied to the quantity of services rather than  outcomes.

Because FFS is transaction-based, reactive care, it can lead to higher costs. It can unknowingly lead to more tests and procedures regardless of benefit, resulting in overutilization. It can also lead to fragmented, disjointed patient care due to lack of coordination between providers. It does, though, have a straightforward billing process and immediate payment. And it doesn’t require tracking care management or outcomes.

Fee-for-Service Examples

In an FFS example, the patient sees their primary care provider and as part of the visit, the patient has bloodwork done and an X-ray. They pay a different fee for the visit, the labwork, and imaging separately. They may even pay for a radiologist to review the X-ray. 

Expand that to a surgery and the patient pays individual fees for the operating room, the surgeon’s service, the anesthesiologist’s service, medication, bandages, follow-up care, and anything else provided. It’s like grocery shopping; every item in the cart has its own cost.

The Value-Based Care Model

VBC pays a fixed rate (usually per month or year) based on the quality of care and the patient’s outcome regardless of the volume of services provided. It’s essentially a pay-for-performance (P4P) model although some VBC setups pay for care in advance. It does use a variety of different value-based payment models — such as shared savings, bundled payments, and capitation. 

By focusing on improving patient results, VBC can lower healthcare costs, and address unneeded healthcare utilization and rising costs. And quality outcomes and patient satisfaction scores are the main metrics used to evaluate success.

CMS’s stated goals for VBC are:

• Better care for individual patients by focusing on preventive measures and effective treatment plans.
• Better, more equitable healthcare for the overall population health, particularly underserved communities.
• Lower costs for healthcare by coordinating care and reducing duplicate or unneeded care.

CMS envisions accomplishing that with person-centered care focused on care quality, provider performance, and the patient experience. Care is provided by a team of providers and specialists who address physical, mental, behavioral, and/or social needs ideally coordinated through a care coordinator. 

And while CMS is a key driver of VBC, states, private insurers, and accountable care organizations (ACOs) have also embraced it. They may use value-based contracts.

Value-Based Care Examples

Preventive care in a value-based care model might include focusing on regular screenings and visits to improve the patient’s outcome. It may also involve two or more providers working with each other to coordinate care as well as more than one service. Payment is based on the outcome of all services regardless of the number provided.

In the FFS surgery example, for VBC, a hospital or provider may get a bundled payment for the surgery that covers everything, including post-operative care such as physical therapy if needed. It’s as if the grocery cart came at a standard fixed cost each trip. 

Fee-for-Service vs Value-Based-Care — Is One Better?

When practiced as intended, value-based care is better for patients and providers and delivers better outcomes at lower overall costs. The “but” to that is that it isn’t as easy to manage for providers.

VBC is operationally more complex than FFS. VBC can require care coordination, data tracking, patient outreach, and the ability to report quality measures. 

On the flip-side, the FFS model can lead to unnecessary tests and procedures as doctors are pushed to bill for services — the higher the volume, the better — potentially over patient care. The unintended end result can be over- or undertreatment, poorer care, and higher patient costs. It’s estimated that overtreatment of patients costs $200 billion a year in the U.S.

The VBC model instead incentivizes providers to deliver quality care while reducing costs, because, with a fixed fee, they keep any savings achieved and don’t forfeit them back to the payer. They may though have to pay money back if quality of care doesn’t achieve set metrics or costs more than preset rates.

Payment Models for Value Based Care vs Fee-for-Service

Payments for fee-for-service follow a single payment structure — one fee for each service provided. Value-based care though doesn’t follow a single payment model. It involves different models, none of which has become standard. The most common models are outlined below.

Accountable Care Organizations (ACOs) 

Accountable care organizations (ACOs) follow a value-based care model that coordinates care between providers. They’re a structured group of providers that can include nurse practitioners, pharmacies, hospitals, and more that agree to provide quality care for Medicare and Medicaid patients. There are both federal and as many of 1,800 independent ACOs. Examples include, but aren’t limited to, the Medicare Shared Savings Program, the ACO REACH Model, TMA PracticeEdge, Anthem Blue Cross of California – Healthcare Partners ACO, and Aetna – Virtual Medical Group ACO.

Bundled Payments

Bundled payments are when a single payment is made for any eligible services and supplies for a given episode of care, regardless of the number of providers, visits, treatments, or supplies involved. So all services are bundled into one payment.

An episode of care covers a specific length of time. Bundled payments may be paid before or after a care episode. Payments are made based on a target estimated cost for all service and supplies for the care episode. When costs are above or below targets, providers may owe money back or get additional compensation, respectively. In essence, payments are no more or less than the target.

Patient-Centered Medical Homes (PCMHs)

In the PCMH model, whole-patient care is coordinated across a team of providers that may include social workers, nutritionists, and others in addition to a physician, nurse practitioner (NP), or physician assistant/associate (PA). It’s not care provided in the patient’s home, but a description of the “primary care medical home” or primary care provider as the key coordinator of the patient’s care among the broader team. It often includes 24×7 access by phone or video to a member of the care team.

With PCMH, an episode of care covers a specific length of time. Bundled payments may be paid before or after a care episode. Payments are made based on a target estimated cost for all service and supplies for the care episode. Payments are no more or less than the target. And when costs go above or below targets, providers may owe money back or get added payment. Payments are no more or less than the target.

Capitated

With capitated payment models, providers are paid in advance based on the expected cost of healthcare services for a care episode or a set care timeframe, even if the patient is never seen. Payments are calculated on a risk score that forecasts the cost of treating a specific patient or group of patients compared to the average Medicare patient, based on their characteristics and health conditions.

Performance-Based Payments (PBPs)

PBPs or pay for performance (P4P) pays providers incentives to meet quality and cost benchmarks instead of for the quantity of services provided. Performance metrics and quality measures are used to evaluate provider performance and determine payment. Metrics assess factors, such as patient health outcomes, care coordination, and patient satisfaction.

CMS has seven different PBP models. PBP is a core component of value-based care. It differs from VBC by tying financial incentives to measurable health outcomes, where value-based care refers to the entire care delivery system.

Merit-Based Incentive Payment System (MIPS) and Advanced Alternative Payment Models (APMs)

MIPS and APMs are part of CMS’s Quality Payment Program (QPP) and are Medicare programs. Both use quality metrics, such as clinical outcomes, patient safety, satisfaction scores, and efficiency metrics, to assess provider performance. 

MIPS pays MIPS-eligible providers  for Medicare Part B covered services and rewards them to improve the care quality and patient outcomes. 

APMs pay incentives to providers for a condition, care episode, or population in return for high-quality, cost-efficient care. Providers can participate in both MIPS and APMs.

How Value for Value-Based Healthcare Is Measured

One challenge of VBC is that there is no one set of metrics used to measure value-based care yet. CMS has multiple different measurement approaches based on facility type, patient type, condition, program, and more. Implementing value-based care payment models can be challenging because measuring metrics can be complex and resource-intensive. The VBC model requires ongoing reporting and data collection to prove value to payers. 

In general, models measure:

• Clinical quality and patient outcomes, such as disease management, preventive care, safety ratings, and mortality rates.
• Cost, including total cost of care, ED visits, admission/re-admission rates, lengths of stays, etc.
• Patient experience and engagement, including satisfaction scores, patient-reported outcomes (PROMs), and access data.
• Efficiency and coordination, such as referral management, care transition, and patient compliance.

Measurements are made with data collection and scoring of performance and improvements against preset benchmarks or targets determined by CMS or insurance providers.

Providers measure their own performance and other metrics and report it to payers and/or CMS. Provider data is then measured against CMS or insurer benchmarks. 

Providers can use private companies for value-based care measurement services and consulting, including Azalea Health partners RevSpring and Aledade. 

The Value in Value-Based Care for Rural Healthcare Organizations

By transitioning to value-based care, rural hospitals and clinics can provide higher-quality care while they: 

• Increase financial sustainability with consistent, predictable payments compared to  fee-for-service models that fluctuate and or be inadequate due to low patient volumes.
• Realize resource optimization with coordinated care across systems and geographies.
• Use VBC’s risk adjustment model that accounts for the unique patient populations in rural areas and can result in higher payments for less healthy populations.
• Integrate technology by using telehealth and virtual or remote care to increase patient access.
• Focus on high-risk patients and reduce risk over time with a focus on preventive care for both healthy and ill patients.

What’s Needed for Value-Based Care?

The American Medical Association outlines some key attributes of a value-based care approach. Those roughly include:

• A clear, shared vision of the VBC model that puts the patient at the center of care.
• A strong IT infrastructure that includes a modern electronic health records (EHR) solution with analytics and patient engagement abilities.
• Broad access to care reinforced by care coordination across providers.
• Payment arrangements that reward quality care and improvements over volume of care.

Barriers to Implementing Value-Based Care vs Fee-for-Service Care in Rural Areas

Fee-for-service care is easy. It’s the model that’s been in use for as long as anyone remembers. Even if the fee was paid with a loaf of bread or chicken. 

Implementing value-based care is not as easy and can be complex. Not only are there multiple VBC payment models, there are specific barriers, especially for rural providers. Specific challenges for rural providers include:

• Funding, a challenge that may intensify with changes brought on by the One Big Beautiful Bill’s impact on Medicaid.
• Technology infrastructure limitations, especially a lack of adequate broadband services that may impede telehealth access and coordination with distant care team members and an outdated EHR that can’t provide adequate data analysis or integration. 
• Staffing shortages that may hamper hiring care coordinators or skilled workers to perform data analysis, although joining an ACO may offer an alternative to an on-site coordinator. And using a third-party for quality reporting is an option.
• Navigating multiple payment models and options. One workaround here is to pick one and master it before taking on another or to use a third-party vendor for support.

Is Your Facility Future-Ready for Fee-for-Service vs Value-Based Care?

Transitioning from FFS to VBC requires planning, time, and rethinking current approaches. It may also require new technology. Transitioning is becoming less of an option though and more of a necessity as CMS’s mandate to shift by 2030 gets closer. One way to start your transition is to evaluate your current systems, train yourself and your staff on value-based care, and collaborate with other providers in your community, county, or state.