Fee for Service (FFS)

Fee for Service (FFS)

FFS is at the intercept of our Framework, where there are no payer savings and no financial risk for clinicians. Because providers are primarily paid by the number of services administered, they have the incentive to over-prescribe, at the cost of the patient. Although it can be used beneficially, for the most part, FFS it is the single biggest contributor to excessive use of services and the fragmentation of the US delivery system. Recently, the American Board of Internal Medicine (ABIM) and other medical societies have joined to highlight the important role of health care professionals in controlling the excessive use of unnecessary services.

Lessons Learned:
There are many lessons to be learned from the implementation of FFS during the past several decades. First, it does not encourage close collaboration between physicians. In fact, there is a strong incentive to avoid collaboration as a means of simply generating more services. Think about this negative incentive (increasing volume for the sake of it) as a very strong headwind. Despite the knowledge of the clinician that an additional imaging study is simply not needed, every market signal screams out: get it done. Second, it does not encourage strong pro-active management of patients. A paper we published in Health Services Research in July 2010 includes the following graphic that illustrates the variation in Potentially Avoidable Complications (PACs) across the country. Reducing this variation could save billions of dollars, but the strong headwind of “more volume” militates against the type of pro-active patient management needed to achieve those savings. That’s why all the other points in our Framework have been designed and are experimented on.

When is FFS beneficial?
Whenever public health officials, employers, and other private and public sector payers want to encourage the delivery of specific services, FFS is the financial incentive of choice.

Some health care services researchers argue that FFS is never good and point to its inability to increase national immunization rates or other preventive care measures. While the evidence does indicate that these rates have not increased measurably despite a predominant FFS payment environment, we argue that these services have low reimbursement thresholds and their supply has been crowded out by the supply of more expensively priced services.

Research on a P4P program in the Hudson Valley of NY by Meredith Rosenthal showed that tying more money to these services, in a FFS manner, does, in fact, increase their supply to patients.