In an effort to improve care quality and lower costs, the
healthcare industry has been working on shifting from fee-for-service to value-based
care delivery. The two models differ in the way providers are reimbursed for the
care they provide by rewarding them service-by-service or based on overall quality
and patient outcomes.
In the following article, HealthPayerIntelligence breaks
down the inner workings and the key differences between the two delivery systems.
Fee For Service
In a
fee-for-service payment model, health plans reimburse providers for each service
they provide to patients, regardless of the outcome.
This is the status quo in
healthcare coverage. Providers may enjoy more control over their salaries and
schedules in fee-for-service models, according to the American Medical Association
(AMA). They also might find that the simplicity of fee-for-service reimbursement
gives them more flexibility in styles of medical practice and work effort.
Fee-for-service health plans typically have no provider
networks and no referral requirements, but members may face higher costs. Some
fee-for-service plans are preferred provider organizations (PPOs). In non-PPO plans,
members can receive care by visiting a doctor or hospital of their choice. In PPO
plans, out-of-pocket costs may be lower for those who see a listed PPO provider.
Members with fee-for-service plans may be required to
provide upfront payments for care and then submit claims for reimbursement.
The
payment model is most commonly associated with traditional Medicare. Traditional
Medicare, also called Medicare fee-for-service, includes hospital insurance through
Medicare Part A and medical insurance through Medicare Part B. Beneficiaries pay a
monthly Part B premium and have a 20 percent coinsurance for Part B services after
meeting their deductible.
Payment rates for providers who participate in Medicare
are determined by prospective payment systems, which establish reimbursement rates
based on a fixed amount. Prospective payment systems differ by provider type, with
CMS releasing new ones each year.
Although the healthcare industry is used to
fee-for-service, the reimbursement model creates barriers to quality care, hinders
care coordination, and spurs high healthcare costs.
This system may promote overutilization and incentivize
providers to deliver excessive treatments, as their payment relies on the quantity
of care rather than the quality.
As a result, health plans and other
stakeholders have started shifting to value-based payment models.
Value Based Care
Unlike
fee-for-service, value-based care models reimburse providers based on the quality of
the care they deliver. Value-based care programs aim to hold providers more
accountable for patient health outcomes by offering financial incentives. The
approach centers around the triple aim of improving population health management,
reducing healthcare costs, and improving the healthcare experience.
Health plans operating under value-based care models
use quality measures to determine provider reimbursement. Common utilization
measures include emergency department use, hospital readmissions, average length of
stay, and prescription drug utilization.
Health plans often use the National Committee for
Quality Assurance’s (NCQA) Healthcare Effectiveness Data and Information Set (HEDIS)
to measure care quality. HEDIS measures shed light on the effectiveness of care,
availability of care, and service utilization.
CMS also offers several models that incentivize
different quality measures. For example, the Hospital Readmissions Reduction Program
(HRRP) uses the excess readmission ratio to assess hospital performance. Hospitals
receive financial penalties in the form of payment reductions if their all-cause
30-day readmission rates exceed the average among hospitals with similar patients.
Value-based models can have upside-only risk, meaning
providers can benefit financially from meeting or exceeding quality and cost
targets. Other models, like HRRP, include downside risk where providers are
penalized for not meeting targets. Models with both upside and downside risk, known
as two-sided risk, may lead to better outcomes, according to past research.
Medicare Advantage
Whereas
traditional Medicare uses a fee-for-service model, Medicare Advantage is built on a
value-based system. Medicare Advantage plans are offered by private companies and
often include prescription drug coverage and supplemental benefits in addition to
covering all traditional Medicare benefits.
Medicare Advantage plans operate under a capitation
model in which they receive a set per-member per-month payment for beneficiaries’
care. Under this risk-based contract, plans agree to assume the full risk of
providing care for beneficiaries with the payments they receive. This arrangement
aims to give the plans flexibility to improve care delivery.
Through the value-based insurance design (VBID) model,
CMS tests various Medicare Advantage service delivery and payment approaches to
lower costs and improve care quality. Plans participating in the model can use
different strategies to target specific beneficiary populations, such as those with
chronic conditions or dual-eligible beneficiaries.
In calendar year 2024, plans
must participate in the Wellness and Health Care Planning component of the VBID
model. Medicare Advantage plans can also test the VBID Flexibilities component, Part
C and Part D Rewards and Incentives (RI) Programs, and the Hospice Benefit
Component. CMS extended the Medicare Advantage VBID model to run until 2030.
The Future of Value-Based Care
CMS
aims to have every traditional Medicare beneficiary in a value-based care
relationship by 2030.
In 2021, 59.5 percent of healthcare payments were tied
to value and quality, while the remaining 40.5 percent were from fee-for-service
models, according to data from the Health Care Payment Learning and Action Network
(HCP LAN).
Value-based care has attracted the attention of private
equity firms. Data from McKinsey & Company found that private capital
investments in value-based care companies grew more than four times between 2019 and
2021.
The management consulting company predicted that
value-based care growth will continue accelerating across all health plans. By 2027,
value-based models will include 5 to 10 million Affordable Care Act plan members, 10
to 15 million Medicare fee-for-service beneficiaries, 20 to 25 million Medicaid
beneficiaries, 25 to 30 million Medicare Advantage beneficiaries, and 70 to 80
million commercially insured members.
Present challenges across the healthcare
system fuel efforts to realize those projections around value-based care uptake.
More accessible and financially rewarding models may encourage participation and
benefit vulnerable or rural populations at a time when care disparities and poor
patient outcomes are rampant.
Source: https://healthpayerintelligence.com/features/value-based-care-and-fee-for-service-whats-the-difference
