A fee-for-service model is the most commonly used payment scheme in healthcare. In the frame of this model, a healthcare provider is paid essentially for the scope of services he or she performs. On the one hand, this model encourages healthcare providers to provide a client with the maximal number of services so that the risk that they will neglect some of their responsibilities is rather low. In the meantime, the model does not imply any incentives to enhance preventative care strategies. As a result, healthcare providers are not motivated to focus on the improvement of patient outcomes (Schroeder & Frist, 2013).
Different Payment Models Leading Up To Current Fee-For-Service Model
Cherry and Jacob (2016) characterize the fee for service model as “retrospective” since it is one of the oldest payment models in healthcare (p. 107). The scheme was initially introduced to prevent healthcare providers from depriving clients of the due services. Additionally, it was implemented with a view of turning healthcare into a business-like institution operating on a competitive basis. The first step to the establishment of the fee for service model was a shift from the fixed payment method to a bundle payment format restricted by CPT and ICD-9 guidelines. Further on, bonus and discount models were introduced to encourage clients to choose a particular healthcare provider. Generally speaking, the healthcare sector adopted a quantity-based approach to service payment. Consequently, healthcare providers received a powerful driver to provide the largest scope of service possible notwithstanding their appropriateness (Schroeder & Frist, 2013). To date, there is a strong need for the implementation of an alternative payment model that would encourage healthcare providers to shift the emphasis from quantity to quality pursuing the principle of continual outcome improvement.
Comparing and Contrasting Health Care Payment Models and Those from Other Types of Businesses
While considering the adoption of an alternative payment model in healthcare, it seems to be rational to overview those formats that other businesses use. Thus, for instance, the so-called service-based model is widely applied in different sectors beyond the healthcare. Generally speaking, any consulting or coaching business might operate on this basis. As such, a client pays for the service he or she receives at the initially set billing rate. As well as in the healthcare sphere, this payment model focuses on the quantitative performance variables rather than on the qualitative indicators.
The population-based model that is commonly applied in the healthcare can hardly be found in other businesses since it does not imply high revenues that they target. Meanwhile, the elements of this payment method are often adopted by entrepreneurs to encourage particular population groups to use the services. Research reveals that modern businesses tend to shift to the value-based payment format. Hence, this payment model suggests that clients pay for the quality rather than the volume of the service they have received. From this perspective, entrepreneurs take up additional responsibilities and agree to bear extra risks. Meanwhile, they likewise improve the image of their business and receive a chance to engage more customers (Baden-Fuller & Haefliger, 2013). To date, the most vivid debates in the healthcare sector are devoted to the prospects of implementing the value-base payment method and raising the providers’ concern about patient outcomes (Mayes, 2011).
Factors Influencing Changes from the Fee-For-Service Model to Value- and Outcome-Based Models
Mayes (2011) notes that there is a series of impact factors that needs to be considered in the frame of the change implementation. First and foremost, the adoption of a new payment method is likely to cause strong resistance in healthcare providers. Hence, they might rationally fear the decrease in the revenues with the implementation of a new payment scheme. As a result, the government might need considering increasing the fixed pay for healthcare providers to release their focus on volume performance indicators.
Another critical factor that needs to be considered is performance measuring strategies. Otherwise stated, the implementation of a value-based payment method requires the development of a consistent assessment technique that would allow measuring this value accurately. Along with introducing new measuring techniques, it is likewise important to establish consistent accounting and reporting so that the performance of every healthcare provider can be properly tracked by the key stakeholders (Fisher, McClellan, & Safran, 2011). Finally, it is essential to take into account such factor as clients’ response to the change implementation. As such, Fisher, McClellan, and Safran (2011) point out that there is a risk of increased clients’ resistance to the shift to a new payment system. In order to eliminate this barrier, healthcare organizations will need to develop effective negotiation strategies to communicate the need for change to the stakeholders.
As such, the need for a new payment model seems to be evident. The existing fee for service method does not provide the essential motivation triggers for outcome improvement. A shift to the value-based pattern, in its turn, will help to ensure a continual service improvement in the healthcare sector.
Baden-Fuller, C., & Haefliger, S. (2013). Business models and technological innovation. Long Range Planning, 46(6), 419-426.
Cherry, B., & Jacob, S. R. (2016). Contemporary nursing: Issues, trends, & management. St. Louis, MO: Elsevier Health Sciences.
Fisher, E. S., McClellan, M. B., & Safran, D. G. (2011). Building the path to accountable care. The New England Journal of Medicine, 365(1), 2445-2447.
Mayes, R. (2011). Moving (realistically) from volume-based to value-based health care payment in the USA: starting with Medicare payment policy. Journal of Health Services Research and Policy, 16(4), 249-251.
Schroeder, S. A., & Frist, W. (2013). Phasing out fee-for-service payment. The New England Journal of Medicine, 368(1), 2029-2032.