The US Health Care Financing: Fee-for-Service Model | Free Essay Example

The US Health Care Financing: Fee-for-Service Model

Words: 883
Topic: Health & Medicine

In each country, the ways to attract economic resources for the preservation and promotion of public health are formed and developed historically. The quantity and quality of resources allocated by the society and the effectiveness of their use in the health sector are determined by a complex system of economic, political, moral, ethical, and other relations in the country (Amelung, 2013). The current payment model in the USA is the fee-for-service; it is crucial to analyze its issues and background to be able to assess whether it functions efficiently or not.

The emergence of Fee-for-Service Model

The current payment method (fee-for-service) emerged after WWII. Before its appearance, the population used to pay for the health care provider to the provider directly. Alternatively, since the 1930s, many American people used to pay through the Blue Cross nonprofit health insurance (Ferguson, 2013). This program implied that patients would get guaranteed care for a fixed payment. Also, this type of insurance included coverage for the hospitalization or other services that were not affordable for the population; however, other services were covered out-of-pocket strictly to the care provider. After WWII, the fee-for-service model emerged when employers started offering insurance coverage as a method to attract workers.

Payment Models

At present, several major types of payment models can be outlined. The main component that unites all of them is the quality factor. It is aimed at ensuring to attain quality metrics; nevertheless, each of the models is efficient for this purpose to a different degree. The fee-for-service is aimed at compensating the care provider for every service that was furnished for the client. This model carries no preventive strategy and is rather criticized at present (Healey & Evans, 2014). Another model is pay-for-performance; it creates a benchmark for quality assessment. According to this approach, health care specialists should be paid as per the quality of care they have furnished. Respectively, this model is referred to as value-based reimbursement. Pay-for-coordination implies that patients may get a unified care plan. The model ensures that multiple care providers are concerted to cut down on the expenses for the pricey tests and manipulations to be conducted (Healey & Evans, 2014).

One more model is called a bundled payment. It implies a set amount to be paid by the patient for a concrete episode of care. It is considered that this model ensures efficiency and high-quality metrics. The global budget is a model that includes a set sum to be reimbursed for furnished care. One of the highly assessed service payment models is called a capitation fee (may be supplemented by fees that have no maximum). Concerning health care, it involves the payment of services per each patient attached to the doctor. This is a modified method of fee-for-service as payment for the medical services will depend on the number of patients (Penner, 2013). In recent years, health care managers and funding agencies around the world are concerned about the increase in general expenses and try to introduce other modern methods of remuneration to control costs and to achieve efficiency at the same time.

From Fee-for-Service to Value-Based Model

It is worth noting that the current system of payment for each medical service (fee-for-service) creates wrongful incentives for doctors and cause rejection in society. Patients (or their insurance companies) have to pay to the hospital for each medical consultation, laboratory test, procedure, and so on separately. As a result, doctors are forced to become sellers of services and begin to assign patients to unnecessary and more expensive tests, procedures, and medications (Peden, 2014). Thus, patients start feeling insecure and question the doctors’ compliance with ethics as well as raise the issue of excessive payments.

To overcome these contradictions, the concept that the hospital should bring benefits to their patients quickly and cheaply and return them to the state, which is characteristic of their age, diagnosis, weight, and so on was considered. This concept is known as the value-based payment, and it has been put forward recently. It includes many types of payment models such as pay-for-performance, shared savings, global capitation, and bundled payments (Peden, 2014). The general framework of these models is to encourage hospitals and doctors to do their main duty, which is the fast and affordable treatment of patients while not making them overpay for unnecessary services that would increase sales to hospitals, pharmacies, and so on. The transition to this paradigm of payment for medical services is a major factor in the competitive development of health care in the country (Penner, 2013). It is advisable to run top-quality medical services as part of a proactive approach to assessing the quality of provided medical services to the population so that the country can gradually move to a new paradigm of payment for medical services.


The country and the population is concerned with the current situation in the health care sector. It is believed that the transition from fee-for-service to value-based payment would improve the situation (Ferguson, 2013). In this regard, conducting a monthly survey of patients for the adequacy of diagnosis and treatment, responsiveness of staff and other issues will be helpful. It would allow obtaining an adequate assessment of the quality of medical services in various hospitals, which will be helpful for managers aiming at improving the service provision.


Amelung, E. (2013). Healthcare management. New York, NY: Springer.

Ferguson, E. (2013). American healthcare reform. Bloomington, IN: Author House.

Healey, B., & Evans, T. (2014). Introduction to health care services. Hoboken, NJ: John Wiley & Sons.

Peden, E. (2014). What’s behind out-of-control US health care spending? Bloomington, IN: Xlibris Corporation.

Penner, S. (2013). Economics and financial management for nurses and nurse leaders. New York, NY: Springer.