Value-Based Care Versus Fee-for-Service: Understanding the Key Differences in Healthcare Models

Value-based care and fee-for-service are two kinds of healthcare reimbursement models for pricing healthcare services. While the fee-for-service model is more traditional, the newer value-based care model has been gaining popularity in recent years.

Historically, value-based care has been harder to implement in behavioral healthcare due to difficulty measuring outcomes—it isn’t as simple as physical health. But, lately, this has been changing with the help of technology. This has had an impact on the behavioral health industry, as value-based care affords opportunities to providers to streamline their practices and to be rewarded for improving their quality of care, but also requires diligence and good recordkeeping.

Value-Based Care vs. Fee-for-Service: Understanding the Key Differences

Fee-for-service is based on services rendered and relies on the provider’s and patient’s judgment on when care is sufficient and has achieved results. In a fee-for-service model, each therapy session might be billed to the payor at a fixed rate. In contrast, value-based care models integrate outcome measurement directly into the contract between the provider and payor, with the provider being paid more money based on the effectiveness of treatment. This has been becoming a more popular mode of healthcare delivery, as it can reduce costs for insurance companies and other payors while rewarding excellent quality of care.

Some common outcome measurements in value-based care payment structures for behavioral health services include improvements in symptoms, quicker treatment success in fewer sessions, and fewer behavioral health hospitalizations. This has the advantage of aligning incentives for the provider with positive outcomes for the patient.

However, a disadvantage is that it requires more data collection and ongoing reporting to the payor, whereas fee-for-service is simpler. Neither model is perfect, but the value-based care model presents interesting opportunities for providers and payors when coupled with electronic health record (EHR) software that streamlines workflows for value-based care.

In this context, “fee-for-service” should not be confused with how behavioral health practitioners are paid. Some businesses choose to pay practitioners a salary (often, with minimum billable hours or a similar requirement), while others choose to pay them based on services rendered, sometimes as independent contractors rather than employees (if legally appropriate). 

Quality of Care: How Value-Based Care and Fee-for-Service Models Compare

Providers are ideally incentivized to provide better quality of care in value-based care models because it is tied to their pay. Some have described value-based care as “the future” of behavioral health. For instance, if a patient’s symptoms are equivalently improved in 10 therapy sessions instead of 20 sessions, under a value-based care model the provider might be paid based on that outcome (effectively, doubling their hourly rate). 

Fee-for-service models assume that quantity is quality, so if more medical treatments are performed, the provider is paid more. This conflict of interest can lead to treatment without improving the quality of care. At the same time, value-based care can provide incentives to rush treatment, although this is remedied with measurement-based care, depending on the objectivity of the measurements. For example, patient symptoms are often measured by patient self-report, which ideally is objective, but could be influenced if the patient misreports improvement (or, lack of improvement).

Out-of-Pocket Costs: How Value-Based Care and Fee-for-Service Models Affect Patients

Some providers find that they are underpaid in an insurance-based practice, as insurance reimbursement rates are often relatively low in the typical fee-for-service model. With support from an EHR that streamlines collecting and reporting on outcomes data, value-based care contracts are a great option to increase revenues while continuing to accept insurance. This also reduces patients’ out-of-pocket costs. Quality of care is measured with more sophistication when you transition to a value-based care model. This results in financial rewards for excelling as a provider, helps patients succeed and reduces attrition from lengthy treatment plans patients are less likely to complete.

On the other hand, some providers require patients self-pay in lieu of billing insurance. A fee-for-service model is common here and providers strive to convey that their behavioral health services are worth the out-of-pocket cost. Still, others, use a blended model including a mix of self-pay and insurance-paid clients. In either case, it is possible and sometimes easier for these providers to transition to a value-based care model, as self-pay clients are interested in paying more for superior quality of care, too. Of course, one must be wary of relying on self-report measures for treatment effectiveness in such cases.

Behavioral Health Services: Which Model is the Best Fit?

Although both models have their strengths and weaknesses, providers and payors are increasingly seeking out the value-based care model as a better fit in many instances. This follows trends in physical health practices where outcomes were historically easier to measure. With the help of technology, as well as research-supported measurement tools, it is now easier than ever to implement a value-based care model in behavioral health. Technology can help facilitate value-based care for providers, patients, and payors. This opens new opportunities for all parties involved.

Clinicians do not have to transition to a value-based care practice all at once. It can be done gradually, one payor at a time. 

Conclusion

The value-based care model contrasts with the fee-for-service model by financially rewarding providers for positive patient quality-of-care outcomes, whereas fee-for-service typically is paid based on the quantity of care delivered. In behavioral health, value-based care has historically presented problems pertaining to the ease and subjectivity of measurement; however, in recent years these problems have been alleviated through technological innovation and advancements in therapeutic and methodological research. This presents a golden opportunity for payors and providers to change their healthcare reimbursement models toward value-based care.

About Ram Krishnan

Ram joined Valant in 2020 as an experienced technology executive to lead the organization through its next stage of growth. His passion for listening to the customer and building strong teams, coupled with his demonstrated ability to drive scalability, provide a solid foundation for Valant to grow as it finds new ways to serve the behavioral healthcare market.

Ram’s robust experience began at GE where he graduated through the Informational Management Leadership Program and went on to lead the Global Radiology and Services business units. After nearly 15 years at GE, he went on to lead multiple SaaS businesses through critical phases of growth. Ram graduated from the University of Virginia with a BS in System Engineering and earned his MBA from The University of Chicago.

electronic health record
software
healthcare
medical