Fee-for-service
Encyclopedia
Fee-for-service is a payment model where services are unbundled and paid for separately. In health care, it gives an incentive
for physicians to provide more treatments (including unnecessary ones
) because payment is dependent on the quantity of care, rather than quality of care. Similarly, when patients are shielded from paying (cost-sharing) by health insurance
coverage, they are incentivized to welcome any medical service that might do some good. FFS is the dominant physician payment method in the United States, it raises costs, discourages the efficiencies of integrated care
, and a variety of reform efforts have been attempted, recommended, or initiated to reduce its influence (such as moving towards bundled payment
s and capitation
). In the Japanese health care system, FFS is mixed with a nationwide price setting mechanism (all payer) to control costs.
receive a fee for each service such as an office visit, test, procedure, or other health care service. Payments are issued retrospectively, after the services are provided. FFS is inflationary, raising health care costs. It creates a potential financial conflict of interest
with patients, as it incentivizes
overutilization
—treatments with either an inappropriately excessive volume or cost. FFS does not incentivize physicians to withhold services. When bills are paid under FFS by a third party, patients (along with doctors) have no incentive to consider the cost of treatment. Patients can welcome services under third-party payers, because "when people are insulated from the cost of a desirable product or service, they use more". Evidence suggests primary care physician
s who are paid under a FFS model to treat patients with more procedures than those paid under capitation
or a salary. FFS also encourages physicians to treat patients with additional expensive procedures. FFS incentivizes primary care physician
s to invest in radiology clinics and perform physician self-referral
in order to generate income. FFS is a barrier to coordinated care, or integrated care
—exemplified by the Mayo Clinic
—because it rewards individual clinicians for performing separate treatments. FFS also does not pay providers to pay attention to the most costly patients, ones that could benefit from interventions such as phone calls that can make some hospital stays and 911 calls unnecessary. In the United States, FFS is familiar to doctors and patients, as it is the main payment method. FFS rewards hard work and industriousness on the part of physicans and "has served many medical specialties well". General practitioner
s have less autonomy after switching from a FFS model to integrated care. Patients, when moved off of a FFS model, may have their choices of physicians restricted, as was done in the Netherlands
in their attempt to move towards coordinated care.
When physicians cannot bill for a service, it serves as a disincentive to perform that service if other billable options exist. Electronic referral, when a specialist evaluates medical data (such as laboratory tests or photos) to diagnose a patient instead of seeing the patient in person, would often improve health care quality and lower costs. However, "in the private fee-for-service context, the loss of specialist income is a powerful barrier to e-referral, a barrier that might be overcome if health plans compensated specialists for the time spent handling e-referrals".
In Canada, the proportion of services billed under FFS over the period of 1990 to 2010 shifted substantially. Less care was paid out for patients under the age of 55 while for those over 65, payment for diagnostic services was sharply increased.
alternatives to the FFS model include the central Pennsylvania Geisinger Health System
(where the physicians, residents and fellows are paid a salary with the potential for bonuses depending upon patient performance), Utah's Intermountain Healthcare
, the Cleveland Clinic
, and Kaiser Permanente
. Coordinated care can produce cost savings of ~50% when compared to FFS programs, but long term savings for payers may not exceed 40%. A goal of accountable care organization
s (ACOs), part of the 2010 U.S. Patient Protection and Affordable Care Act
(PPACA), is to move from FFS to integrated care. ACOs, however, fit largely into a FFS framework, and do not abandon the model entirely. This approach suggests policymakers are attempting to avoid provoking public outcry, as happened with managed care
in the 1990s by giving providers incentives to give less care. The PPACA aims to first move Medicare away from FFS, then other payers. A Swiss study showed physicians wanted significant pay raises to leave FFS for an integrated care model, while patients wanted lower premiums before they would choose one, results that hint at difficulties for PPACA aims.
In China—where FFS resulted in costly, inefficient, and poor quality health care with a degeneration in medical ethics
—reforms have been initiated to realign health care provider incentives. Experimentation with new payment models is undergoing and recommendations include a strengthening of medical ethics, alterations to provider's profit motives, and, in cases where hospitals retain their profit motive, segregating physicians from the goal of profit.
In the U.S., a 1990s move from FFS to pure capitation
provoked a backlash from patients and health care providers. Pure capitation pays only a set fee per patient, regardless of sickness, giving physicians an incentive to avoid the most costly patients. In order to avoid the pitfalls of FFS and pure capitation, models of episode-of-care payment and comprehensive care payment have been proposed. In 2009, the U.S. state of Massachusetts (with the then highest health care costs in the country) had a group of ten health care experts who worked under legislative mandate to come up with a plan to tackle costs (the Massachusetts Payment Reform Commission); they unanimously concluded the FFS model must be done away with. Their plan included a move away from FFS to a global payment system that had similarities to a capitated system. No U.S. state, up to 2009, had attempted to do away with FFS.
The Medicare Payment Advisory Commission
(MedPAC), in their mid-2011 report to Congress, called for a mechanism so that Medicare beneficiaries would have disincentives to undergo discretionary care, but not needed care.
provides an alternative to paying commission. In the fee-for service pricing model, a broker may charge for showing trips or other services.
Incentive
In economics and sociology, an incentive is any factor that enables or motivates a particular course of action, or counts as a reason for preferring one choice to the alternatives. It is an expectation that encourages people to behave in a certain way...
for physicians to provide more treatments (including unnecessary ones
Overutilization
Overutilization refers to medical services that are provided with a higher volume or cost than is appropriate. In the United States, where health care costs are the highest as a percentage of GDP, overutilization is the predominant factor in its expense...
) because payment is dependent on the quantity of care, rather than quality of care. Similarly, when patients are shielded from paying (cost-sharing) by health insurance
Health insurance
Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is...
coverage, they are incentivized to welcome any medical service that might do some good. FFS is the dominant physician payment method in the United States, it raises costs, discourages the efficiencies of integrated care
Integrated Care
Integrated care – also known as coordinated care, comprehensive care, seamless care and transmural care – is a worldwide trend in health care reforms and new organizational arrangements focusing on more coordinated and integrated forms of care provision...
, and a variety of reform efforts have been attempted, recommended, or initiated to reduce its influence (such as moving towards bundled payment
Bundled payment
Bundled payment, also known as episode-based payment, episode payment, episode-of-care payment, case rate, evidence-based case rate, global bundled payment, global payment, package pricing, or packaged pricing, is defined as the reimbursement of health care providers "on the basis of expected...
s and capitation
Capitation (healthcare)
Capitation, is a method of paying health care service providers a set amount for each enrolled person assigned to that physician or group of physicians, whether or not that person seeks care, per period of time....
). In the Japanese health care system, FFS is mixed with a nationwide price setting mechanism (all payer) to control costs.
Health care
In the health insurance and the health care industries, FFS occurs when doctors and other health care providersHealth profession
The health care industry, or medical industry, is the sector of the economic system that provides goods and services to treat patients with curative, preventive, rehabilitative, palliative, or, at times, unnecessary care...
receive a fee for each service such as an office visit, test, procedure, or other health care service. Payments are issued retrospectively, after the services are provided. FFS is inflationary, raising health care costs. It creates a potential financial conflict of interest
Conflict of interest
A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
with patients, as it incentivizes
Incentive
In economics and sociology, an incentive is any factor that enables or motivates a particular course of action, or counts as a reason for preferring one choice to the alternatives. It is an expectation that encourages people to behave in a certain way...
overutilization
Overutilization
Overutilization refers to medical services that are provided with a higher volume or cost than is appropriate. In the United States, where health care costs are the highest as a percentage of GDP, overutilization is the predominant factor in its expense...
—treatments with either an inappropriately excessive volume or cost. FFS does not incentivize physicians to withhold services. When bills are paid under FFS by a third party, patients (along with doctors) have no incentive to consider the cost of treatment. Patients can welcome services under third-party payers, because "when people are insulated from the cost of a desirable product or service, they use more". Evidence suggests primary care physician
Primary care physician
A primary care physician, or PCP, is a physician/medical doctor who provides both the first contact for a person with an undiagnosed health concern as well as continuing care of varied medical conditions, not limited by cause, organ system, or diagnosis....
s who are paid under a FFS model to treat patients with more procedures than those paid under capitation
Capitation (healthcare)
Capitation, is a method of paying health care service providers a set amount for each enrolled person assigned to that physician or group of physicians, whether or not that person seeks care, per period of time....
or a salary. FFS also encourages physicians to treat patients with additional expensive procedures. FFS incentivizes primary care physician
Primary care physician
A primary care physician, or PCP, is a physician/medical doctor who provides both the first contact for a person with an undiagnosed health concern as well as continuing care of varied medical conditions, not limited by cause, organ system, or diagnosis....
s to invest in radiology clinics and perform physician self-referral
Physician self-referral
Physician self-referral is a term describing the practice of a physician ordering tests on a patient and having them performed either by themselves or by a facility from which they receive a financial incentive for the referral....
in order to generate income. FFS is a barrier to coordinated care, or integrated care
Integrated Care
Integrated care – also known as coordinated care, comprehensive care, seamless care and transmural care – is a worldwide trend in health care reforms and new organizational arrangements focusing on more coordinated and integrated forms of care provision...
—exemplified by the Mayo Clinic
Mayo Clinic
Mayo Clinic is a not-for-profit medical practice and medical research group specializing in treating difficult patients . Patients are referred to Mayo Clinic from across the U.S. and the world, and it is known for innovative and effective treatments. Mayo Clinic is known for being at the top of...
—because it rewards individual clinicians for performing separate treatments. FFS also does not pay providers to pay attention to the most costly patients, ones that could benefit from interventions such as phone calls that can make some hospital stays and 911 calls unnecessary. In the United States, FFS is familiar to doctors and patients, as it is the main payment method. FFS rewards hard work and industriousness on the part of physicans and "has served many medical specialties well". General practitioner
General practitioner
A general practitioner is a medical practitioner who treats acute and chronic illnesses and provides preventive care and health education for all ages and both sexes. They have particular skills in treating people with multiple health issues and comorbidities...
s have less autonomy after switching from a FFS model to integrated care. Patients, when moved off of a FFS model, may have their choices of physicians restricted, as was done in the Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
in their attempt to move towards coordinated care.
When physicians cannot bill for a service, it serves as a disincentive to perform that service if other billable options exist. Electronic referral, when a specialist evaluates medical data (such as laboratory tests or photos) to diagnose a patient instead of seeing the patient in person, would often improve health care quality and lower costs. However, "in the private fee-for-service context, the loss of specialist income is a powerful barrier to e-referral, a barrier that might be overcome if health plans compensated specialists for the time spent handling e-referrals".
In Canada, the proportion of services billed under FFS over the period of 1990 to 2010 shifted substantially. Less care was paid out for patients under the age of 55 while for those over 65, payment for diagnostic services was sharply increased.
Reform
Moving away from FFS towards pay for performance introduces quality and efficiency incentives, instead of solely rewarding quantity. In addition to the Mayo Clinic, other health care systems that serve as coordinated/integrated careIntegrated Care
Integrated care – also known as coordinated care, comprehensive care, seamless care and transmural care – is a worldwide trend in health care reforms and new organizational arrangements focusing on more coordinated and integrated forms of care provision...
alternatives to the FFS model include the central Pennsylvania Geisinger Health System
Geisinger Health System
The Geisinger Health System is a physician-led health care system of northeastern and central Pennsylvania with headquarters located in Danville, Pennsylvania.-History of Geisinger:...
(where the physicians, residents and fellows are paid a salary with the potential for bonuses depending upon patient performance), Utah's Intermountain Healthcare
Intermountain Healthcare
Intermountain Health Care, Inc., DBA as Intermountain Healthcare, and formerly known as Intermountain Health Care , is a non-profit healthcare system and is the largest healthcare provider in the Intermountain West. Intermountain Healthcare provides hospital and other medical services in Utah and...
, the Cleveland Clinic
Cleveland Clinic
The Cleveland Clinic is a multispecialty academic medical center located in Cleveland, Ohio, United States. The Cleveland Clinic is currently regarded as one of the top 4 hospitals in the United States as rated by U.S. News & World Report...
, and Kaiser Permanente
Kaiser Permanente
Kaiser Permanente is an integrated managed care consortium, based in Oakland, California, United States, founded in 1945 by industrialist Henry J. Kaiser and physician Sidney Garfield...
. Coordinated care can produce cost savings of ~50% when compared to FFS programs, but long term savings for payers may not exceed 40%. A goal of accountable care organization
Accountable care organization
An accountable care organization is a type of payment and delivery reform model that seeks to tie provider reimbursements to quality metrics and reductions in the total cost of care for an assigned population of patients. A group of coordinated health care providers form an ACO, which then...
s (ACOs), part of the 2010 U.S. Patient Protection and Affordable Care Act
Patient Protection and Affordable Care Act
The Patient Protection and Affordable Care Act is a United States federal statute signed into law by President Barack Obama on March 23, 2010. The law is the principal health care reform legislation of the 111th United States Congress...
(PPACA), is to move from FFS to integrated care. ACOs, however, fit largely into a FFS framework, and do not abandon the model entirely. This approach suggests policymakers are attempting to avoid provoking public outcry, as happened with managed care
Managed care
...intended to reduce unnecessary health care costs through a variety of mechanisms, including: economic incentives for physicians and patients to select less costly forms of care; programs for reviewing the medical necessity of specific services; increased beneficiary cost sharing; controls on...
in the 1990s by giving providers incentives to give less care. The PPACA aims to first move Medicare away from FFS, then other payers. A Swiss study showed physicians wanted significant pay raises to leave FFS for an integrated care model, while patients wanted lower premiums before they would choose one, results that hint at difficulties for PPACA aims.
In China—where FFS resulted in costly, inefficient, and poor quality health care with a degeneration in medical ethics
Medical ethics
Medical ethics is a system of moral principles that apply values and judgments to the practice of medicine. As a scholarly discipline, medical ethics encompasses its practical application in clinical settings as well as work on its history, philosophy, theology, and sociology.-History:Historically,...
—reforms have been initiated to realign health care provider incentives. Experimentation with new payment models is undergoing and recommendations include a strengthening of medical ethics, alterations to provider's profit motives, and, in cases where hospitals retain their profit motive, segregating physicians from the goal of profit.
In the U.S., a 1990s move from FFS to pure capitation
Capitation (healthcare)
Capitation, is a method of paying health care service providers a set amount for each enrolled person assigned to that physician or group of physicians, whether or not that person seeks care, per period of time....
provoked a backlash from patients and health care providers. Pure capitation pays only a set fee per patient, regardless of sickness, giving physicians an incentive to avoid the most costly patients. In order to avoid the pitfalls of FFS and pure capitation, models of episode-of-care payment and comprehensive care payment have been proposed. In 2009, the U.S. state of Massachusetts (with the then highest health care costs in the country) had a group of ten health care experts who worked under legislative mandate to come up with a plan to tackle costs (the Massachusetts Payment Reform Commission); they unanimously concluded the FFS model must be done away with. Their plan included a move away from FFS to a global payment system that had similarities to a capitated system. No U.S. state, up to 2009, had attempted to do away with FFS.
The Medicare Payment Advisory Commission
Medicare Payment Advisory Commission
The Medicare Payment Advisory Commission is an independent US federal body. MedPAC was established by the Balanced Budget Act of 1997 . Its primary role is to advise the US Congress on issues affecting the administration of the Medicare program...
(MedPAC), in their mid-2011 report to Congress, called for a mechanism so that Medicare beneficiaries would have disincentives to undergo discretionary care, but not needed care.
Examples
- Medicare in the U.S.Medicare (United States)Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over; to those who are under 65 and are permanently physically disabled or who have a congenital physical disability; or to those who meet other...
is a FFS program. - In an area not related to health services, the United States Patent and Trademark OfficeUnited States Patent and Trademark OfficeThe United States Patent and Trademark Office is an agency in the United States Department of Commerce that issues patents to inventors and businesses for their inventions, and trademark registration for product and intellectual property identification.The USPTO is based in Alexandria, Virginia,...
operates on a FFS model.
Real estate
In real estate, the fee-for-service model of paying a brokerBroker
A broker is a party that arranges transactions between a buyer and a seller, and gets a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal...
provides an alternative to paying commission. In the fee-for service pricing model, a broker may charge for showing trips or other services.