Definition

fee-for-service (FFS)

Contributor(s): Dave Bernard

Fee-for-service (FFS) is a payment model in which doctors, hospitals, and medical practices charge separately for each service they perform. In this model, the patient or insurance company is responsible for paying whatever amount the healthcare provider charges for the service.

While FFS is currently the predominant payment method in the United States, concerns about quality of care have caused a shift away from this model -- which reimburses payments for services regardless of their impact on patient health -- to a value-based care model. Critics maintain that FFS is responsible for creating an unsustainable healthcare system in the United States because its inherent financial incentives cause caregivers to focus on increasing the number of billable visits, tests, treatments and procedures instead of the patient's best interests.

In contrast, financial compensation in a value-based care system is based on patient outcomes rather than the number and cost of services provided. Electronic health records and access to data are making the switch to value-based care possible because the data is pointing people toward treatments that statistically work.

Alternatives to traditional fee-for-service payments

In response to concerns that FFS contributes to over-treatment in the United States, a number of alternative payments models are under consideration. They include:

  • Accountable care organizations (ACO), in which groups of healthcare providers agree to share responsibility for coordinating lower-cost, higher-quality care for a group of patients. While ACOs don't entirely move away from the fee-for-service payment model, they usually provide bonuses for keeping healthcare costs down and meeting quality benchmarks.
  • Bundled payments, in which an employer negotiates with a provider for a pre-determined package of services that will address a particular medical need. Essentially, the fee-for-service becomes a fee for suite-of-services.
  • Capitation, in which physicians are paid a flat fee-per-patient, usually on a monthly or quarterly basis.
  • Patient-centered medical home, which focuses on preventive care, patient education and the coordination of bundled services between different healthcare providers.
  • Salary, in which payment is not tied to enrollees or the expense of services rendered. Instead, physicians are paid a fixed weekly or monthly fee.
This was last updated in June 2018

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