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Value-Based Care Vs. Fee-For-Service: What Is The Difference?

by | Mar 22, 2022

Value-based care had already been emphasized by the Centers for Medicare and Medicaid Services (CMS) for two years by 2010 when the Affordable Care Act (ACA) codified reimbursement for value, or quality, instead of fee-for-service, or quantity, of care.  

Value-based care vs. fee-for-service has been a choice available to providers for the last 12 years. Now, in addition to policy shifts employed by CMS, value-based care is also being proactively adopted by an increasing number of private payers. 

Is your practice planning for the best model for longevity and profitability?  

What is Value-Based Care?  

The Value-Based Care Model rewards healthcare providers who focus on the quality of provided care. Reimbursement of services are based on those services’ effectiveness in preventing illness and promoting health.  

Value-based care programs encourage better healthcare for individuals, healthier lives for communities and lower costs over time. They have been increasingly prominent since the Affordable Care Act refocused healthcare toward measuring patient outcomes rather than quantifying care administered without accountability.  

Value-based care is focused on encouraging care that is effective and applied judiciously, and documented accurately. Advocates of Value-based care vs. fee-for-service say it improves patients’ health and reduces healthcare costs.  

What is the Fee-For-Service Care Model?  

The fee-for-service model pays healthcare providers based on individual care services provided, without regard to the effectiveness of that care when it comes time to pay for it. Despite the ascendant philosophy of value-based care vs. fee-for-service payment model and its support under the Affordable Care Act for the last several years, the latter remains dominant.  

Fee-for-service is still in use by most practices long after the ACA. A 2020 report by Deloitte Insights notes that nearly all physicians, 97 percent, still rely on fee for service and/or salary for compensation. 

A 2018 article on hfma.org lists some reasons fee-for-service remains so entrenched. First, legacy claims payment systems are already set up for fee for-service healthcare. Second, provider support services, including coding and bill preparation, are similarly aligned with legacy systems. Third, legislative and reporting agencies require reports based on units of care that fee-for-service coding systems support. 

There are also practical reasons behind fee-for-service’s endurance, as Beth Hickerson, healthcare consulting expert, points out in “Barriers to Value-Based Care in Physician Practices.” 

Two significant barriers are the demand on physicians’ and practices’ time that a shift to value-based care vs. fee-for-service would require, and the immediate need to provide patient care within the existing system, Hickerson explained. 

Value Based Care vs. Fee-For-Service: 5 Key Differences and Benefits 

For anyone still wondering, ”What is value based care going to do for my practice?”, there are sobering answers.  

  1. Policy shifts offer advantages: As CMS continues to update policy to encourage value-based care, and private payers also shift contracts to account for quality, practices and providers already preparing to offer value-based services will have an advantage over those still focused on fee-for-service.  
  1. Penalty protection: Policies that discourage fee-for-service care will be easier to weather for a practice or system beginning to adopt value-based reimbursement. 
  1. Better long-term health outcomes: Quality care tends to focus on avoiding issues before they develop into long-term chronic conditions. Your patients will benefit as fewer appointments focus on dealing with the consequences of avoidable issues. 
  1. Patient engagement: Patients react positively when involved in plans to improve their health. Value-based care is more cooperative in nature; success requires more patient input, and most are willing to provide it.   
  1. Better insights: Value-based care requires paying closer attention to the trends and data governing your practice and patients. You’ll learn more about your practice, likely in surprisingly helpful ways.   

Why Should Your Practice Care?  

Even though fee for service is the more widely used reimbursement method at the moment, the days that will be true may be numbered.  

Under the ACA’s Medical Loss Ratio (MLR) requirement, systems must spend at least 80 percent of their premium income on healthcare claims and quality of care improvement, leaving the remaining 20 percent for administration, marketing, and profit. Meanwhile, CMS aims to significantly move healthcare in the country toward value-based care by 2030. More private insurers are taking the initiative to adopt value-based reimbursement.  

Between now and then, however, there will be policy changes and new programs that will make proactive value-based care adoption a smart move for practices and organizations that wish to make sure they take advantage of benefits. 

An immediate example of policy changes between now and then likely to demand the attention of practices is a recently proposed rule proposed by the CMS. The proposed change would ensure provider bonuses included as incurred claims in insurers’ medical loss ratios are directly tied to quality or clinical improvement standards, as reported by Modern Healthcare.   

Also, CMS recommended that only spending directly related to quality improvement should count toward insurers’ quality improvement claims in their ratio.  

If finalized, the proposed change, albeit directed at insurers/payers, could accelerate the adoption of value-based care since providers will have to share more information to satisfy the insurers’ MLR requirement under the ACA.  

Value-based care promises healthier patients, reduced costs and a better understanding between providers and patients. Strong steps in that direction now will pay off with a better positioned practice and healthier clientele.  

Medical Advantage Can Help 

Shifting to value-based care is daunting, especially for an independent practice. Medical Advantage offers a wide range of services to alleviate the burden of implementing value-based care. Starting with EHR optimization, our consultants can assist your practice in documenting care efficiently and accurately, ultimately improving VBC performance. We can also work with your staff to train them in billing and coding for value-based arrangements. Our interventions will help you maximize your participation in programs like Accountable Care Organizations, the Merit-Based Incentive Program, Medicare Shared Savings Program, Direct Contracting Entities, commercial physician incentive programs, and more. In fact, we have experience running our own value-based care physician organization, which has seen over $80,000 in shared savings over the past 5 years, in addition to supporting other physicians organizations and Accountable Care Organizations in maximizing quality performance and reimbursement for their physicians. To learn more about implementing or optimizing value-based care in your practice, contact one of our consultants today.  

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