fee-for-service

In the health insurance and the health care industries, FFS occurs if doctors and other health care providers receive a fee for each service such as an office visit, test, procedure, or other health care service.[http://www.opm.gov/insure/glossary/index.asp FEHB Glossary.] Retrieved May 31, 2006. Payments are issued only after the services are provided. FFS is potentially inflationary by raising health care costs.{{Cite journal | author=Winnie Chi-Man Yip, William Hsiao, Qingyue Meng, Wen Chen & Xiaoming Sun | title = Realignment of incentives for health-care providers in China | journal=The Lancet | volume = 375 | issue = 9720 | pages = 1120–1130 |date=March 2010 | doi = 10.1016/S0140-6736(10)60063-3 | pmid = 20346818| s2cid = 19766054 }}

FFS creates a potential financial conflict of interest with patients, as it incentivizes overutilization,{{cite journal |author=Ronald M. Green |date=July–August 1990 |title=Medical joint-venturing: An ethical perspective |journal=Hastings Center Report |volume=20 |issue=4 |pages=22–6 |doi=10.2307/3562762 |jstor=3562762 |pmid=2211082}}—treatments with an inappropriately excessive volume or cost.{{Cite journal | author = Ezekiel J. Emanuel & Victor R. Fuchs | title = The perfect storm of overutilization | journal = JAMA: The Journal of the American Medical Association | volume = 299 | issue = 23 | pages = 2789–2791 | date = June 2008 | doi = 10.1001/jama.299.23.2789 | pmid = 18560006 | url = http://www.ipalc.org/Healthcare_Policy/The%20Perfect%20Storm%20of%20Overutilization%20%28JAMA%202008%29.pdf | url-status = dead | archive-url = https://web.archive.org/web/20090902053119/http://www.ipalc.org/Healthcare_Policy/The%20Perfect%20Storm%20of%20Overutilization%20%28JAMA%202008%29.pdf | archive-date = 2009-09-02 }}

FFS does not incentivize physicians to withhold services. If bills are paid under FFS by a third party, patients (along with doctors) have no incentive to consider the cost of treatment.{{Cite journal | author=Victor R. Fuchs | title = Eliminating 'waste' in health care | journal=JAMA: The Journal of the American Medical Association | volume = 302 | issue = 22 | pages = 2481–2482 |date=December 2009 | doi = 10.1001/jama.2009.1821 | pmid = 19996406}} 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."{{cite news |title=Why Medicare Patients See the Doctor Too Much |author1=Merrill Matthews |author2=Mark Litow |newspaper=The Wall Street Journal |date=July 11, 2011 |url=https://www.wsj.com/articles/SB10001424052702304760604576428300875828790 |access-date=July 22, 2011}}

Evidence suggests primary care physicians paid under a FFS model tend to treat patients with more procedures than those paid under capitation or a salary.{{cite journal |vauthors=Gosden T, Forland F, Kristiansen IS, etal |title=Capitation, salary, fee-for-service and mixed systems of payment: effects on the behaviour of primary care physicians |journal=Cochrane Database Syst Rev |issue=3 |pages=CD002215 |year=2000 |volume=2011 |pmid=10908531 |doi=10.1002/14651858.CD002215 |pmc=9879313 }} FFS incentivizes primary care physicians to invest in radiology clinics and perform physician self-referral to generate income.

While most practices have succumbed to the need to see more patients and increase FFS procedures to maintain revenue, more physicians are looking to alternate practice models as a better solution. In addition to value-based reimbursement models, such as pay-for-performance programs and accountable care organizations, there is a resurgence of interest in concierge and direct-pay practice models.[http://www.physicianspractice.com/great-american-physician-survey/content/article/1462168/2100106 "Healthcare Reform Influencing Physicians' Career Choices"] {{Webarchive|url=https://web.archive.org/web/20120921034720/http://www.physicianspractice.com/great-american-physician-survey/content/article/1462168/2100106 |date=2012-09-21 }} Aubrey Westgate, Physicians Practice, September 2012. When patients have greater access to their physicians and physicians have more time to spend with patients, utilization of services such as imaging and testing declines.

FFS is a barrier to coordinated care, or integrated care, exemplified by the Mayo Clinic, because it rewards individual clinicians for performing separate treatments.{{cite book |title=Building a Better Delivery System: A New Engineering/Health Care Partnership – Bridging the Quality Chasm |last=Lawrence |first=David |year=2005 |publisher=National Academy of Sciences |location=Washington, DC |isbn=978-0-309-65406-7 |page=99 |url=https://www.ncbi.nlm.nih.gov/books/NBK22832/pdf/TOC.pdf#page=114}} FFS also does not pay providers to pay attention to the most costly patients, which could benefit from interventions such as phone calls that can make some hospital stays and 911 calls unnecessary.{{cite news |title=The Hot Spotters: Can we lower medical costs by giving the neediest patients better care? |author=Atul Gawande |newspaper=The New Yorker |date=January 24, 2011 |url=http://www.newyorker.com/reporting/2011/01/24/110124fa_fact_gawande?currentPage=all |access-date=June 26, 2011}} In the US, FFS is the main payment method. Executives regret the changes to managed care, believing that FFS turned "industrious, productivity-oriented physicians into complacent, salaried employees."{{Cite journal | author=Robert A. Berenson & Eugene C. Rich | title = US approaches to physician payment: the deconstruction of primary care | journal=Journal of General Internal Medicine | volume = 25 | issue = 6 | pages = 613–618 |date=June 2010 | doi = 10.1007/s11606-010-1295-z | pmid = 20467910 | pmc = 2869428}}{{cite journal| author=Chernew ME| title=Reforming payment for health care services: comment on "physicians' opinions about reforming reimbursement" | journal=Arch Intern Med | year= 2010 | volume= 170 | issue= 19 | pages= 1742–4 | pmid=20975021 | doi=10.1001/archinternmed.2010.377 }} General practitioners have less autonomy after switching from a FFS model to integrated care.{{Cite journal | author=Peter Zweifel | title = Swiss experiment shows physicians, consumers want significant compensation to embrace coordinated care | journal=Health Affairs | volume = 30 | issue = 3 | pages = 510–518 |date=March 2011 | doi = 10.1377/hlthaff.2010.0954 | pmid = 21383370}} Patients, when moved off of a FFS model, may have their choices of physicians restricted, as was done in the Netherlands' attempt to move to co-ordinated 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."{{Cite journal | author=Thomas Bodenheimer | title = Coordinating care – a perilous journey through the health care system | journal=The New England Journal of Medicine | volume = 358 | issue = 10 | pages = 1064–1071 |date=March 2008 | doi = 10.1056/NEJMhpr0706165 | pmid = 18322289 | citeseerx = 10.1.1.527.4412 }}

In Canada, the proportion of services billed under FFS from 1990 to 2010 shifted substantially. Less care was paid out for patients under 55 while for those over 65, payment for diagnostic services was sharply increased.{{cite journal |author=Rachel Mendleson |date=October 25, 2010 |title=The Worst-Run Industry in Canada: Health Care |journal=Canadian Business |volume=83 |issue=17 |url=http://www.canadianbusiness.com/article/11248--the-worst-run-industry-in-canada-health-care |access-date=June 27, 2011 |archive-date=November 8, 2012 |archive-url=https://web.archive.org/web/20121108110547/http://www.canadianbusiness.com/article/11248--the-worst-run-industry-in-canada-health-care |url-status=dead }}

Moving away from FFS towards pay for performance introduces quality and efficiency incentives instead of rewarding quantity alone.{{Cite journal | author=Karen Davis | title = Paying for care episodes and care coordination | journal=The New England Journal of Medicine | volume = 356 | issue = 11 | pages = 1166–1168 |date=March 2007 | doi = 10.1056/NEJMe078007 | pmid = 17360996 }} In addition to the Mayo Clinic, other health care systems serve as co-ordinated/integrated care alternatives to the FFS model like South Central Pennsylvania's Geisinger Health System whose 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.{{cite journal |author=Jeffery Kluger |date=October 26, 2009 |title=A Healthier Way to Pay Doctors |journal=TIME |volume=174 |issue=16 |url=http://www.time.com/time/magazine/article/0,9171,1930501,00.html |archive-url=https://web.archive.org/web/20091019055342/http://www.time.com/time/magazine/article/0,9171,1930501,00.html |url-status=dead |archive-date=October 19, 2009 |pmid=19873802 |pages=36–40}} Coordinated care can produce cost savings of about 50% when compared to FFS programs, but long term savings for payers may not exceed 40%.

A goal of accountable care organizations (ACOs), part of the 2010 Patient Protection and Affordable Care Act (PPACA), is to move from FFS to integrated care.{{cite news |title='Accountable care' expected to save millions for Medicare |author1=Phil Galewitz |author2=Jordan Rau |author3=Bara Vaida |newspaper=Kaiser Health News |publisher=McClatchy |date=March 31, 2011 |url=http://www.mcclatchydc.com/2011/03/31/111354/accountable-care-expected-to-save.html |access-date=June 26, 2011}} ACOs, however, fit largely into a FFS framework and do not abandon the model entirely.{{Cite journal | author=John K. Iglehart | title = The ACO regulations – some answers, more questions | journal=The New England Journal of Medicine | volume = 364 | issue = 17 | pages = e35 |date=April 2011 | doi = 10.1056/NEJMp1103603 | pmid = 21488758 }} That 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 and then other payers.{{Cite journal | author=Kenneth E. Thorpe & Lydia L. Ogden | title = Analysis & commentary. The foundation that health reform lays for improved payment, care coordination, and prevention | journal=Health Affairs | volume = 29 | issue = 6 | pages = 1183–1187 |date=June 2010 | doi = 10.1377/hlthaff.2010.0415 | pmid = 20530352}} A Swiss study showed physicians wanted significant pay raises to leave FFS for an integrated care model, and 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 ongoing and recommendations include a strengthening of medical ethics, alterations to provider's profit motives, and, if hospitals retain their profit motive, segregating physicians from the goal of profit.

In the US, 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.{{Cite journal | author = Harold D. Miller | title = From volume to value: better ways to pay for health care | journal = Health Affairs | volume = 28 | issue = 5 | pages = 1418–1428 |date=September–October 2009 | doi = 10.1377/hlthaff.28.5.1418 | pmid = 19738259}} To avoid the pitfalls of FFS and pure capitation, models of episode-of-care payment and comprehensive care payment have been proposed. In 2009, Massachusetts, with the 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.{{cite news |title=To Lower Costs, Mass. May Restructure Doctor Pay |author=Richard Knox |newspaper=Morning Edition |publisher=NPR |date=August 5, 2009 |url=https://www.npr.org/templates/story/story.php?storyId=111492444 |access-date=June 26, 2011}}

In 2014, Maryland set up an independent commission which created a fixed revenue system, or global budget for the state's hospitals. Both public and private insurers pay into a common fund. Each hospital has a stable yearly income which it can use to plan. Budgets were originally based on the number of patients and procedures reported in 2013, with annual adjustments for inflation and population change. Going forward, it is to a hospital's benefit to avoid unnecessary procedures and to adopt preventive programs that reduce chronic illness and re-admissions.

In its first five years, Maryland's new payment system saved an estimated $1.4 billion in Medicare costs compared to other states. In addition, rates of preventable hospital-acquired illness fell.{{cite journal |last1=Colmers |first1=John |last2=Glied |first2=Sherry |title=Let's change how we pay for hospitals |journal=Knowable Magazine |date=1 November 2021 |doi=10.1146/knowable-102921-1 |s2cid=240472969 |url=https://knowablemagazine.org/article/society/2021/lets-change-how-we-pay-hospitals |access-date=9 November 2021|doi-access=free }}

An even more striking difference was observed during the COVID-19 pandemic as fee-for-service hospitals provided less of the elective services that they depended on for funding. An assessment of the Financial Effects of COVID-19: Hospital Outlook for the Remainder of 2021 predicted that hospital income could remain as much as 80 percent lower than pre-pandemic levels. In contrast, outpatient hospital revenue fell only 14.6 percent and inpatient revenue by 1.6 percent in Maryland's hospitals, looking at the period from January–July in 2019 and 2020.{{cite web |title=Financial Effects of COVID-19: Hospital Outlook for the Remainder of 2021 |url=https://www.aha.org/guidesreports/2021-09-21-financial-effects-covid-19-hospital-outlook-remainder-2021 |website=American Hospital Association|date=September 2021 |access-date=9 November 2021}}

Medicare in the US is a FFS program.{{Cite journal | author=Peter B. Bach | title = Costs of cancer care: a view from the centers for Medicare and Medicaid services | journal=Journal of Clinical Oncology | volume = 25 | issue = 2 | pages = 187–190 |date=January 2007 | doi = 10.1200/JCO.2006.08.6116 | pmid = 17210938}} The Medicare Payment Advisory Commission (MedPAC), in its mid-2011 report to Congress, called for a mechanism so that Medicare beneficiaries would have disincentives to undergo unnecessary care.{{cite news |title=Medicare Options In Biden Budget Talks Get Boost |newspaper=NPR |publisher=The Associated Press |date=June 15, 2011 |url=https://www.npr.org/templates/story/story.php?storyId=137200637 |access-date=June 26, 2011 }}{{Dead link|date=August 2019 |bot=InternetArchiveBot |fix-attempted=yes }}

The United States Patent and Trademark Office operates on a FFS model.{{cite web |url=http://thomas.loc.gov/cgi-bin/cpquery/T?report=sr397&dbname=110& |title=Report on Departments of Commerce and Justice, Science, and Related Agencies Appropriations Bill, 2009 |publisher=United States Senate Committee on Appropriations |date=June 23, 2008 |access-date=July 4, 2011 |quote=As a fee for service agency the USPTO operates in a business like model. |archive-date=May 7, 2009 |archive-url=https://web.archive.org/web/20090507155859/http://thomas.loc.gov/cgi-bin/cpquery/T?&report=sr397&dbname=110& |url-status=dead }}

In real estate, the fee-for-service model of paying a broker provides an alternative to paying commission. In the fee-for service pricing model, a broker may charge for showing trips or other services.ABout.com Real Estate Business definitions http://realestate.about.com/od/df/g/deffeeforsvc.htm {{Webarchive|url=https://web.archive.org/web/20160420211435/http://realestate.about.com/od/df/g/deffeeforsvc.htm |date=2016-04-20 }}

• Bundled payment
• Health maintenance organization
• Preferred provider organization

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{{Unnecessary health care}}

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Category:Health economics

Category:Healthcare reform in the United States

Category:Revenue models