The Fee-for-Service or FFS payment model continues to be the most widely used payment model in the United States. Under this model, medical providers are paid based on the volume and intensity of the services they provide to their patients. In the Fee-for-Service model, there are limited to no incentives to coordinate care, provide less services or provide less costly services. Many point to the economic incentives underlying the Fee-for-Service payment model as one if not the biggest cause of high healthcare costs and trends in the United States. There are a variety of methods that are used to establish payment rates in a Fee-for-Service model, some of which vary depending on the type of medical provider. Physicians and other outpatient providers are typically paid for services based on a fee schedule that may be dictated or negotiated by the insurer. Often, the physician fee schedule is expressed in terms of the fee schedule that is used by Medicare, called RBRVS or resource-based relative value scale fee schedule. This schedule assigns payment rates for services using relative values of the resources required to provide various services. Alternatively, the fee schedule may be a percentage of the physician or hospital charges. Hospitals are typically paid on a per day or per admission basis, when a patient stays overnight. The per admission basis establishes what is called a DRG payment, diagnostic-related groups, based on the average cost of services anticipated to be provided when a patient is in the hospital, including the days of the patient is anticipated to be there, and varies depending on the medical reason for the admission. Given the diversity of illnesses for which patients are admitted and the resource requirements to care for those patients, DRG payments can vary dramatically by patient. For example, the DRG payment for a patient admitted with diabetes is quite lower than the DRG payment for a patient who is in the hospital to have a surgical hip replacement. Given the flaws of the Fee-for-Service payment model, there has been an urgent call to move more toward value-based payments, where insurers and government payers would no longer pay for volume and intensity of service, but rather would pay for coordinated, efficient patient-centered care. Essentially, they would pay for the value and improved health outcomes rather than just paying if a service is provided. These value-based payment models represent a continuum of options, with increasing provider engagement and transfer of risk and accountability to the providers. Under a Fee-for-Service payment model, the provider is not assuming any risk for payment because they are paid every service they provide to the patient. They are not held accountable for care, coordination or outcomes. As risk is transferred to providers, they are held more accountable for the care they provide to their patients, health outcomes, and the cost efficiency of that care. If providers do not deliver high value care, their payments may be reduced. The thinking is that if providers are paid a fixed amount for care and if that payment varies depending on the quality and clinical outcomes achieved, they will be more engaged in determining the right services to provide at the right time and in the right setting. In a one-sided risk model, the Fee-for-Service payment model is still used and providers are offered the opportunity to earn incentives or more money, based on satisfactory performance on quality and efficiency measures. In a two-sided risk model, providers are more at risk and stand to get paid less if they do not provide high-quality, cost-efficient care. These payment models typically establish a target spending level and quality targets, and if providers meet those targets, they earn incentives and more money, but if they do not meet those targets, they are penalized and actually make less money. Under a full risk model, the providers are salaried or paid a capitation, which is a fixed amount per patient and does not vary regardless of how much healthcare services are provided to the patient. In full risk models, there are no incentives to do more services or more costly services because the providers' income is completely unaffected. Although Fee-for-Service payment models are the most widely used, there are significant flaws that need to be considered when looking at the patient's healthcare needs. For this reason, other payment models, value-based payment models, have come into play, where the providers are paid for value rather than just providing a service. I continue to encourage you to follow the money and determine how the funds flow changes under these new payment models.
