Fee-for-Service Healthcare Model

Lauren Higgins

In recent years there has been increased conversation about moving the US Healthcare System away from “fee-for-service” and towards a “value-based” system. So what exactly does a “fee-for-service” system look like? What are the advantages and disadvantages of this system?  

A fee-for-service model is the traditional system we see in healthcare, and is the model that the US uses today. Under this payment structure, patients pay physicians for each service that they receive. A good metaphor is a grocery store. If you go to the grocery store and buy bread, you pay for the cost of that one loaf of bread. If you were to buy two loaves of bread, you would pay for both loaves. Should you decide to buy pasta instead, it would most likely have a different price than the bread because they are different products. Similarly, in a fee-for-service system you pay for the cost of a medical service, such as a cast for a broken arm. If you were to need casts on both arms, like the loaves of bread, you would pay for both casts. If instead of a cast, the doctor decided you needed surgery, that would be a different cost because it is a different service.

In principal this makes sense, a Doctor bills a patient for the services they provide using a system where each service is coded using codes known as the CPT (current procedural terminology) codes. Each code is associated with a specific procedure a doctor can provide to a patient. As a patient requires additional services the costs would naturally increase.

Some criticisms of this system is in the incentive it provides for doctors to conduct procedures, even if they are unnecessary. The fear is that patients can be exploited in the fee-for-service model to pay for services that do not improve their health. Another critique is that this system forces doctors to spend more time filling out paperwork than with the patient. Rather than focusing on the patients themselves, some argue fee-for-service encourages doctors to be more focused on the financial and administrative side of care.

On the positive side, this system is clear in how patients are billed and is organized through the CPT codes. A fee for service model also tends to be better organized with private General Practitioners. Creating systems of care can limit patient choice in who they see and physician autonomy in who they send a patient to for further service.

Overall, it is agreed that a fee-for-service model as it currently exists, is not efficient or effective in the long run. With healthcare costs increasing and quality of care not showing significant gains, the US has started to make movements towards a value-based care system. In the ideal situation, a patient would be able to have access to the best quality of care at an affordable cost.