What Is Fee-For-Service?

Most of us see our doctors in a fee-for-service system – this is where doctors and hospitals charge fees for each separate service they provide. Office visits, tests, procedures, and even microtasks like individual screenings can be billed separately. One major drawback to fee-for-service is rewarding quantity over quality. This type of payment model can lead to ordering tests or procedures that may be unnecessary and in turn drive up health care costs rather than rewarding tests and procedures that are more likely to make you healthy or rewarding outcomes. In this model, we end up paying for the quantity or volume of health care services that we receive.

This is the most traditional and most widely used payment model in our country’s health care system. However, now that many groups are calling to replace volume or quantity with care based around value or quality, fee-for-service’s reign as the top model may be fleeting.

Quality vs. Quantity = Value vs. Volume
Alternatives to fee-for-service are often called alternative or accountable payment models or value-based purchasing. These alternative models include bundled payments like those we have been developing at the Bree Collaborative and programs like the Health Care Authority’s Accountable Care Programs. These models reward high-quality care that prevents problems before they occur, that uses evidence-based procedures shown to be effective, and that is coordinated around the patient’s needs.

The whole country is moving toward value-based care.  In 2010, the Federal Affordable Care Act (ACA) introduced a number of new alternative payment models. As with any long-standing tradition, especially in a system as large and complex as health care, such a significant change can be like persuading hikers to try a new trail up a mountain rather than sticking to the same familiar, well-worn path; even if the new trail has better views. This can take some coaxing.

In the years following the passage of the ACA, much of that coaxing has come from Federal and State governments. In January 2014, the State Health Care Cost Containment Commission, a bipartisan group co-chaired by State Governors, came out with a report concluding that the most significant way to drive down health care costs is by eliminating fee-for-service payment. This was big! That the report came from a coalition of states was key – as states deliver insurance to roughly 80 million individuals. Washington State has a goal that 80% of state-financed health care and 50% of the private market are part of value-based payment by 2019. We are also seeing employers who purchase health care for their employees lead the way to value-based care. Read more about that in the Harvard Business Review here.

Additionally, the final rule on 2015’s Medicare Access and CHIP Reauthorization Act (MACRA) came out within the last two weeks, replacing the old sustainable growth-rate formula that determined physician pay for Medicare with a new pathway to value-based payment. The two pathways, alternative payment models or the Merit-Based Incentive Payment System (MIPS), are described in a reader-friendly interactive format here.

What to Expect Next
As the tide continues to shift, we should see a steady number of systems moving toward value-based payment models. In many locations the transition will likely involve various forms of hybrid payment systems. As Utah Governor Michael Leavitt, one of the chairs of the State Health Care Cost Containment Commission, told Paul Demko for Modern Healthcare in 2014, “This is a five- to 10-year horizon we’re talking about, not something that is going to happen quickly.” Stay tuned for more information as this movement unfolds and how these changes will affect health care here in Washington State.

Emily Wittenhagen
Bree Collaborative Program Assistant

Ginny Weir, MPH
Bree Collaborative Program Director