Shifting Reimbursement Models: Value-Based vs. Fee-For-Service

March 03, 2018

By Peter J. Avellino

It is widely believed that regardless of the future state of the Affordable Care Act (ACA), the pressure to reduce cost of care will undoubtedly remain. And no matter what reimbursement model is utilized, healthcare providers will be required to employ both clinical and non-clinical staff members with a high degree of analytical, critical thinking, and people skills in order to sustain continued organizational growth throughout this transformative period.

The two models generally practiced around the US are fee-for-service (FFS) and value-based (VB) payment, which are in direct conflict. The fee-for-service payment model is the unbundling of services, thus encouraging physicians to generate high productivity, while the value-based payment model is outcomes-driven, encouraging physicians to focus on quality of care metrics.

The Centers for Medicare and Medicaid Services (CMS), along with the insurance industry as a whole, have made many attempts over the years to move away from a FFS model because it adversely rewards healthcare providers based on the number of clinical services provided, rather than quality of outcomes. The pushback from physicians demanding greater autonomy when delivering care, coupled with resistance to change from patients, did not allow alternative models to gain any real traction.

However, today’s healthcare landscape is experiencing increasing pressure to shift reimbursement models to some form of VB due, in part, to patients wanting to be more involved in their care decisions and being burdened with a greater cost-share responsibility. In addition, CMS is detailing specific targets for transitioning to a value-based payment model which will likely further accelerate the transition.

This trend is likely to continue over the next three to five years, giving healthcare providers the opportunity to acquire extensive data analytics knowledge and a deeper bench around population health management programs. More specifically, healthcare providers will need to implement expanded solution sets in the areas of:

  • Business Intelligence – the ability to collect and analyze data;
  • Return on Investment – the ability to monitor VB managed care contract revenue opportunities, as compared to the cost of implementation;
  • Interoperability – the ability to aggregate clinical information between hospitals and physician practices;
  • Real-Time Data Access – the ability to provide meaningful clinical data to care providers and point-of-service;
  • Care Standardization – the ability to provide an environment that allows for the use of standardized care process data;
  • Chronic Care Management – the ability to provide systems and processes that support wellness and management of patients with high volume, high cost chronic diseases;
  • Post-Discharge Follow-Up – the ability to provide ongoing support to post-discharge patients requiring ongoing clinical assistance (e.g. home health services, structured patient follow-up protocols); and,
  • Physician Compensation – the ability to compensate physicians both for FFS and VB payment models.

There are a number of complexities around value-based payment models (e.g. capitation, bundled payments, shared savings, and hybrid payments) that must be considered. It will be incumbent upon healthcare providers and third party payers to fully understand the intricacies associated with each of these programs (including the installation of the appropriate systems and protocols) before engaging in a contractual agreement. A general explanation of these specific models are as follows:

  • Capitation Agreements involve a monthly pre-set dollar amount per member to cover a specific set of services which may include: preventative and diagnostic treatments, injections and immunizations, outpatient lab work, and health education and counseling. The issue with capitation is that its primary focus is on reducing cost with less emphasis on quality care initiatives.
  • Bundled Payment Agreements allow third party payers and healthcare providers to negotiate a set dollar amount for a specific episodic event. The idea is to share risk among all providers tied to a single episodic event. That can be challenging because each provider controls their individual budgets – not withstanding how the dollars will be parceled out to each provider.
  • Shared Savings Agreements are usually made up of a group of providers joining together under one umbrella, such as an Accountable Care Organization (ACO) that has contracted with third-party payers to provide care for a patient population in order to meet certain quality and cost metrics for that population over an agreed-upon time period. If the ACO is successful in providing care at a lower cost than what was previously established, both the ACO and the third-party payer would then share in the savings.
  • Hybrid Payment Agreements are a combination of more than one payment model. Hybrid payments typically include an FFS component blended with one of the VB payment models discussed above. The purpose is to ease healthcare providers away from a system that pays for volume and towards a system that pays for value.

In conclusion, it is unlikely that we will altogether move away from a FFS payment model in the near future. It is more likely that we will see additional programs around a blended payment model, similar to the hybrid payment agreement as discussed above, that will focus on the need to provide individualized care services, balanced with desired outcomes measured through the use of quality metrics.


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