The Negative Impacts of Fee-For-Service Payment

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January 29th, 2013
Categories: Health News

fee for service paymentChanging our healthcare system requires that we change the way in which we pay for medical services. Fee-for-service (FFS) is seen as one of the most significant drivers of healthcare cost, contributes to the wasteful use of resources and lacks an incentive for coordinated care.

National healthcare spending has reached about 17.6% of the US GDP ($2.8 trillion) and is expected to continue to grow to nearly 20% (about $4.8 trillion).  The unsustainable healthcare spending strains the budgets of employers, government payers and individuals who bear the costs of premiums, higher deductibles and co-pays.

In effect, the fee-for-service payment model rewards providers for the volume of services they provide with no consideration for the quality of care being delivered. Providers are incentivized to provide more services and lack an incentive to provide better and more coordinated care.  Fee-for-service can even be seen to indirectly reward providers for the poor health of their patients by linking payment to the volume of services provided to ‘treat’ illnesses rather than to improved health outcomes.

Fee-for-Service affects quality and costs through the incentives it provides and the incentives it lacks:

  • FFS encourages providers to deliver more care and more expensive care.
    Rewarding volume intrinsically creates incentives to perform unnecessary services. Providers may give in to the temptation of abusing the volume-based system and offer as many services as possible to a patient without regard to outcomes or evidence based guidelines. Providers also lack an incentive to prescribe equally effective but less costly treatments.
  • FFS aids fragmentation of care by paying separate fees to each provider.
    Fee-for-service lacks a financial incentive to align providers and encourage coordination of care. As a result, patients often receive a duplication of services from the providers involved in their treatment. FFS can even be financial incentive to not coordinate care by presenting an opportunity to provide additional and redundant services to the patient. Fragmentation of care also affects the efficiency with which patients receive care and can delay the delivery of necessary treatment to patients. It also has a noted impact on post-discharge care and transitions from one care setting to another.
  • Poor care coordination increases treatment plan variance and reduces use of evidence-based medicine. Without proper coordination, patient medical history and information about previous tests and treatments is lost, often leaving providers to create a new treatment plan without the necessary information. Furthermore, providers are motivated to provide all services that could possibly be applicable to the patient’s condition in order to increase volume, instead of using evidenced-based medicine (EBM) to determine the most appropriate method of treatment. EBM provides a systematic approach to treating patients, reducing variability and cost of care.
  • Fees are paid the same regardless of the quality of care provided, without regard to outcomes or quality of care provided. In many cases, providing lower quality care can be even more profitable for providers. An incentive tied to quality is not present.
  • FFS does not encourage low-cost, high-value services, such as preventative care or patient education. Services such as preventative care, disease management and patient education have significant impacts on patient health and reducing health costs, yet reducing volume of services by offering more appropriate services is not rewarded with fee-for-service.