In recent years, the American healthcare industry has gradually begun to shift away from a fee-for-service (FFS) payment model and toward one that charges based on physician care. This updated model, known as “fee-for-value” or “value-based reimbursement,” aims to do away with the FFS policy of charging patients and insurers based solely on the number of performed services or procedures. With the transition in full swing, it is important for medical coders and billers to understand the origins of each of these systems, as well as their key differences.


Originating just before the outbreak of World War II, fee-for-service began with a simple formula: a patient would receive a medical service, report the service to his/her insurance company, and wait for the proper reimbursement.This same time period also gave rise to the modern prepaid plan, in which insurers required a set premium in exchange for care from a predetermined set of “in-network” providers. Unfortunately, the ever-increasing number of employers providing company health insurance plans led to such a high rate of insured individuals that medical care prices skyrocketed; simultaneously, insurance guidelines tightened, forcing providers to operate within stricter parameters. This led to many of the FFS problems we see today, including patients undergoing unnecessary procedures simply to incur a higher bill and more money for the practice.

Value-Based Reimbursement

More recently, many insurance providers have seen the failings of the FFS system and have instead begun to incentivize fee-for-value models. Under this new formula, facilities must keep track of objective measures of patient quality, such as how quickly patients received treatment, whether or not they were given specific discharge instructions, how many patients contracted hospital-acquired infections, etc. Additionally, value-based reimbursement models monitor the number of deaths from pneumonia, heart failure, and acute myocardial infarction, and penalize facilities with high rates of these mortalities. Though this system is expected to benefit the medical industry in the long-run, it will take time for it to be accepted and used on a national basis.

In the end, the shift from fee-for-service to value-based reimbursement promises better overall care for patients. Although value-based reimbursement is not without its issues (more on that in a later blog), many healthcare professionals are optimistic that it will change the field for the better.