The fee-for-service system has been the main way to pay for healthcare in the U.S. for many years. In this system, providers get paid for each test, procedure, or visit they do. This setup encourages doing more services but does not always reward better patient care or results. Because of this, it can cause inefficiencies, unnecessary tests, and higher healthcare costs.
Even with its problems, fee-for-service is still common. Around 2020, about 40% of Medicare payments were still made this way. There are plans to move most Medicare and Medicaid patients to value-based care by 2030. Right now, a mix of fee-for-service and value-based payments is used. This helps providers adjust but also makes handling payments more complicated.
Value-based care wants to focus more on quality than quantity. Instead of paying for each service, providers get rewards for giving good and efficient care that helps patients get better and lowers costs. The main measure in value-based care is “value,” which means the quality of care divided by how much it costs.
The Centers for Medicare & Medicaid Services (CMS) leads this change. By 2030, CMS plans to have all traditional Medicare and most Medicaid patients in programs where providers work together to manage care. These programs are called Accountable Care Organizations (ACOs). ACOs help reduce hospital stays, manage long-term diseases better, and promote prevention.
Changing from fee-for-service to value-based care brings money problems for many providers. Medicare and Medicaid cover more patients now because of more older adults and Medicaid expansion, but these programs usually pay less than private insurers. Hospitals often lose money on Medicare patients; for instance, in 2011, hospitals lost about 5 cents on every dollar from Medicare patients. This adds financial pressure during the change.
Hospitals and clinics must be careful with their budgets. Seeing more patients is one way to make up for less money from fewer paid procedures. Also, controlling costs and cutting waste helps providers keep money since savings usually go to providers, not payers.
Shared savings programs are common in value-based care. They pay providers extra if they spend less money while keeping or improving care quality. Managing these programs well is important to get bonuses. Providers who miss quality goals might have to pay penalties, so good performance is very important.
Value-based care requires providers to track many quality measures. These include how often patients return to the hospital within 30 days, patient satisfaction, following prevention guidelines, and results for certain diseases. Reporting this data is hard and changes often, which takes a lot of work.
Primary care is getting more complex too. Between 2000 and 2019, the number of Medicare patients seeing five or more doctors a year rose from 18% to 30%. This makes coordinating care and tracking quality harder. Primary care doctors must now work with more specialists, adding to the complexity.
CMS programs like Making Care Primary (MCP) and ACO REACH help with these problems by promoting advanced primary care. These programs adjust payments based on social risk and include incentives to improve health equity and outcomes for underserved patients.
Artificial Intelligence (AI) and workflow automation are important tools in moving from fee-for-service to value-based care. They help reduce paperwork, improve data accuracy, and support faster decisions.
Primary care is very important in value-based care. CMS has programs to support primary care financially because it plays a key role in managing patient care well. These programs pay for activities besides doctor visits, like care management and telehealth, which fee-for-service usually does not cover.
However, a 2022 survey showed many primary care providers feel strained. Almost half said the situation was “crumbling.” Low pay and more paperwork are reasons for this feeling. The COVID-19 pandemic showed weaknesses in primary care funding and pointed out the need for steady, value-based payments to keep primary care strong.
Value-based models now include social risk adjustments to help safety-net providers who serve disadvantaged patients. Programs like ACO REACH have increased participation from community clinics and rural hospitals, helping improve care for these groups.
Accountable Care Organizations (ACOs) hold providers responsible for cost and quality for a group of patients. By working together, ACOs aim to reduce unnecessary care and improve patient results.
Shared savings programs pay ACOs or providers extra if they spend less than set targets while keeping quality good. Managing these contracts well needs strong financial control to track savings, combine fee-for-service and value-based payments, and follow contract rules.
Providers who handle shared savings well can earn bigger bonuses. Those who do not meet data or quality goals may face penalties or lose bonuses, which hurts money flow during the change.
Patient-Centered Medical Homes (PCMH) help by giving coordinated and patient-focused care. PCMH models reduce visits to emergency rooms and hospital stays by improving prevention and follow-up.
Telehealth is also a useful part of value-based care. Remote visits and digital monitoring help patients follow treatment and get care when needed. This raises patient satisfaction and helps meet quality targets under new payment models.
Work to improve health equity is now part of value-based care. Social factors affect patient health, so payments are adjusted to reflect social risks.
Programs like Making Care Primary require plans for health equity and collecting demographic data. These steps aim to lower gaps in healthcare access and outcomes, supporting better health for whole populations.
Changing from fee-for-service to value-based payment is challenging but offers chances for healthcare providers in the U.S. Learning about new payment systems, tracking quality measures, improving care coordination, and using data and AI tools are important steps.
Medical practice leaders should focus on:
Providers and IT teams working together can build systems that meet rules and support patient-focused, sustainable care in the changing healthcare system.
The main shift is from fee-for-service (FFS) to value-based reimbursement models, where payments are based on the quality and value of care delivered rather than the quantity of services provided.
The transition can be financially challenging, particularly for providers who may face penalties for not meeting necessary quality metrics, leading to potential revenue losses.
1) Effectively manage shared savings programs, 2) Improve operating costs, and 3) Increase patient volumes.
As the percentage of patients covered by Medicare and Medicaid increases, which tend to have lower reimbursement rates, hospitals face tightening margins, adversely affecting profitability.
Shared savings programs incentivize providers to reduce healthcare spending for defined patient populations by rewarding them with a portion of the savings achieved.
Hospitals must simultaneously manage FFS and value-based payment systems, requiring sophisticated accounting capabilities to track performance and savings accurately.
Quality measures are tied to financial incentives and penalties, meaning providers must demonstrate they meet standards to receive adequate reimbursements.
Hospitals can focus on managing shared savings programs, streamlining operations to reduce waste, and increasing patient volumes to counteract revenue loss.
Analytics help healthcare systems understand costs, track quality measures, optimize performance, and streamline operations for better decision-making.
The aging baby boomer population will likely increase Medicare enrollment, while Medicaid expansion will further strain reimbursement rates, continuing the trend of lower profitability for hospitals.
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