Value-Based Care Vs. Fee-For-Service: What Is The Difference?

Does your practice utilize the best model for longevity and profitability?  Value-based care vs. fee-for-service has been a choice for providers within the last 12 years. Now, in addition to policy shifts deployed by the Centers for Medicare and Medicaid Services CMS, value-based care (VBC) is also being proactively adopted by an increasing number of private payers. This article illustrates the difference between these payment models.  

Value-Based Care vs. Fee-For-Service Model: 5 Key Differences and Benefits   

In 2010, the Affordable Care Act (ACA) codified reimbursement for value, or quality, instead of fee-for-service (FFS), or quantity of care. VBC was already emphasized by CMS for the two years prior. Understanding the key differences and benefits of each model is essential for healthcare providers, patients, and policymakers navigating the future of healthcare delivery. But first, consider the benefits of VBC for your practices:    

1. Policy shifts offer advantages: As CMS continues to update policies that promotes value-based care while private payers also shift contracts that incentivize quality, practices and providers already prepared to offer value-based services will have an advantage over those still focused on fee-for-service.    
2. Penalty protection: VBC contracts often include penalty protection mechanisms that safeguard healthcare providers from financial losses due to unforeseen patient outcomes. 
3. Better long-term health outcomes: Quality care tends to focus on avoiding issues before they develop into long-term chronic conditions. Your patients will benefit as fewer appointments will focus on dealing with the consequences of what could have been avoidable issues. Better outcomes can also boost the reputation of your healthcare brand and individual providers.  
4. Patient engagement: VBC is more cooperative in nature; success requires more patient input, and most are willing to provide it. In turn, patients tend to react positively when involved in plans to improve their health.     
5. Better insights: Value-based care requires paying closer attention to the trends and data governing your practice and patients. You will learn more about your practice, likely in surprisingly helpful ways.     

What is Value-Based Care?    

Simply put, the VBC Model rewards healthcare providers who achieve cost-saving objectives by focusing on the quality of care provided. Payment for services is based on those providers’ effectiveness in preventing illness and promoting optimal health outcomes.    

Value-based care programs promote better healthcare for individuals, leading to healthier lives for communities, and lower costs over time. Notably, they have been increasingly prominent since the ACA redirected focus toward measuring patient outcomes in contrast to quantifying the care administered without accountability.    

VBC is focused on providing care that is effective, applied judiciously and documented accurately. Advocates of value-based care vs. fee-for-service say it improves patients’ health and reduces healthcare costs. Because of the stark differences between these models, medical practices can transform for the better by adopting VBC principles.   

The shift to the Value-Based Care Model is expected to continue as the CMS continues to hand down new policies that encourage and incentivize care quality over quantity of encounters. 

Types of Value-Based Care Models 

Value-based care can be categorized into four models: bundles, shared savings, shared risk, and global capitation. For more details on the categories of VBC, read this article

What is the Fee-For-Service Care Model?    

The FFS model reimburses healthcare providers based on individual care services provided, without regard to the effectiveness of that care upon payment.  

Despite the ascendant philosophy of value-based care vs. fee-for-service payment model and its continued support under the ACA, the latter remains dominant. A 2020 report by Deloitte Insights notes that 97% of physicians still rely on fee-for-service and/or salary for compensation. 

Regarding value-based care: “Yeah, it’s about the evaluations showing that we’re getting better outcomes and lower costs. It’s really about building a better health system. That’s why we got into this in the first place.” – Mark McClellan, MD, PhD, professor at Duke University and founding director of the Duke-Margolis Center for Health Policy

Advantages and Disadvantages of the Fee-For-Service Model 

Fee-for-service remains deeply entrenched because legacy systems for claims payment are already set up for fee for-service healthcare. Similarly, provider support services, including coding and bill preparation, are aligned with legacy systems. In addition, legislative and reporting agencies require reports based on units of care that fee-for-service coding systems coincidentally support. Many argue there are both advantages and disadvantages to the traditional model: 

Advantages: 

• Clear and transparent reimbursement structure: Providers are paid for each service rendered, making the reimbursement process simple and straightforward. 
• Incentives for providers to see more patients: The model encourages healthcare providers to increase patient visits and volume of services, potentially increasing access to care. 
• Flexibility in choosing treatment options: Physicians have the freedom to decide on a wide range of treatments without limitations posed by predefined care protocols. 

Disadvantages: 

• Potential for overutilization of services: The emphasis on volume can lead to unnecessary tests and procedures, driving up healthcare costs without necessarily improving patient health. 
• Limited focus on patient outcomes and quality of care: With payment tied to services rather than results, there is less incentive to prioritize holistic and long-term patient health outcomes. 
• Fragmented care delivery: The fee-for-service model often leads to disjointed and uncoordinated care, as providers operate independently without a unified approach to managing a patient’s overall health. 

Perhaps most importantly, the FFS model can inadvertently neglect preventive measures and coordinated care, which are essential for managing chronic conditions and maintaining overall health. 

The Tug of War Between Value-Based Care vs Fee-For-Service  

There are also practical reasons behind fee-for-service’s endurance. Two significant barriers are the demand on physicians’ and practices’ time that a shift to value-based care vs. fee-for-service would require that may not be compatible with the immediate need to provide patient care within the existing system.   

Beth Hickerson, healthcare consulting expert at Medical Advantage, explains why many have not yet moved to value-based care: “When prioritizing between actual reimbursements now versus theoretical reimbursements at a later date, actual reimbursements will almost always win. This is not because providers are greedy, or even short-sighted. It is because the reimbursement for health care services has not increased to match the cost of inflation. The low reimbursement levels and increased pressure to see as many patients as possible can lead to reactive care patterns. The focus of care changes from what is the best care for each patient to what is the best care that we can provide for this patient in the next 15 minutes.”  

Challenges in Transitioning to Value-Based Care 

Designing and implementing value-based payment models is inherently complex. These models require a thorough understanding of how to structure payments based on quality metrics and patient outcomes, which can vary widely across different healthcare settings. Additional challenges include:  

• Financial risks for providers: Unlike the predictable revenue stream of fee-for-service (FFS), value-based care models tie compensation directly to performance outcomes, which can fluctuate and lead to financial instability for providers not meeting the required benchmarks. 
• Measuring and reporting outcomes: The complexity of developing reliable metrics that reflect true quality of care and ensure consistent data collection across all levels of care can prevent faired accurate evaluation that determines provider compensation. 
• Need for effective health information technology and data exchange: Due to high costs and technical challenges, many organizations struggle to implement and maintain the advanced HIT systems needed to track patient progress and share data seamlessly.  
• Reconciling payments in a fee-for-service environment: As organizations transition from FFS to value-based care, they must reconcile two different payment systems, often requiring significant administrative adjustments and creating potential for inefficiencies and errors. 

Moving to a model that emphasizes population health management necessitates paradigm shift from focusing on individual patient encounters to prioritizing long-term health outcomes and preventive care. This can be a difficult adjustment as it involves re-training staff, altering clinical workflows, and re-aligning organizational goals and incentives. 

Implementation Considerations for Providers 

Transitioning to VBC requires thorough planning and strategic execution. Providers should begin by evaluating their current capabilities and readiness for value-based care, including a comprehensive assessment of: 

• Existing clinical workflows 
• Data management systems 
• Financial health 
• Organizational culture 

Understanding these factors helps identify gaps and areas that need improvement as to make way for value-based models. 

Care Coordination 

Providers can enhance collaboration among healthcare teams through integrated care plans, regular interdisciplinary meetings, and utilizing care coordinators to manage patient transitions between settings. This approach ensures all team members are aligned in delivering consistent, high-quality care. 

Performance Metrics 

Providers should define clear, actionable metrics that align with value-based goals, such as patient satisfaction, readmission rates, and chronic disease management. Regularly reviewing these metrics helps in adjusting strategies and maintaining high standards of care. 

Risk Management 

Providers can mitigate risks by implementing robust financial management practices, diversifying revenue streams, and engaging in shared savings programs or risk-sharing agreements. These strategies help cushion the impact of potential financial fluctuations associated with meeting quality and cost targets. 

Staff Education 

Comprehensive education programs are essential to familiarizing staff with new protocols, performance metrics, and care coordination strategies. Empowered and knowledgeable staff are better equipped to deliver high-quality care within the value-based framework. 

Patient Engagement 

Providers can engage patients through educational initiatives, shared decision-making processes, and using technology such as patient portals. Encouraging patients to take an active role in their health management leads to better outcomes and higher satisfaction levels. 

Technology Adoption 

Supporting a dramatically different care model calls for advanced EHR systems, data analytics tools, and interoperability solutions that facilitate seamless information exchange. Efficient use of technology supports the fundamental aspects of VBC such as care coordination, outcome tracking, and overall efficiency. 

Continuous Improvement 

Continuous feedback, regularly reviewing performance data, and remaining agile in adapting to emerging challenges and opportunities are instrumental in a successful transition to VBC. A commitment to continuous improvement ensures value-based initiatives remain effective and responsive to patient needs. 

Medical Advantage Can Help   

All that shifting to value-based healthcare entails can be overwhelming, especially for an independent practice. Medical Advantage can help alleviate that burden. Helping providers prepare for a new way of providing care starts with EHR optimization. Our consultants can help you document care more efficiently and accurately in support of successfully meeting VBC objectives. We can also work with your staff to train them in best practices for billing and coding value-based arrangements.   

We help practices maximize participation in:  

• Accountable Care Organizations   
• Merit-Based Incentive Program  
• Medicare Shared Savings Program  
• Direct Contracting Entities 
• Commercial physician incentive programs  

In fact, we have experience running our own value-based care physician organization. We also support other physicians’ organizations and Accountable Care Organizations to help maximize quality performance and reimbursement for their physicians. To learn more about implementing or optimizing value-based healthcare in your practice, contact one of our consultants today.