The healthcare revolution is here – and it’s not centered around a debate of healthcare-for-all or whether or not to repeal or expand the Affordable Care Act. It is taking place in the continued shift from fee-for-service models to a system of value-based care.  This article provides a basic summary of what Value-Based Care is and how it compares to the traditional Fee-For -Service (“FFS”) model.

Americans are more likely to die younger, and from avoidable causes, than residents of peer coutries.

Why value-based care is on the rise in U.S.

As a nation, the United States spends much more on healthcare, both per person and as a share of GDP, than other high-income countries, however, it does not get the best results.  

According to the Commonwealth Fund, the U.S. has the lowest life expectancy at birth, the highest death rates for avoidable or treatable conditions, the highest maternal and infant mortality, and among the highest suicide rates.  

Moreover, minorities and individuals with low incomes have a history of inequality in access to care and are more likely to experience adverse health outcomes than the rest of the population.

These longstanding and extensive problems arise in part from the lopsided incentives built into the nation’s traditional, Fee-For-Service (“FFS”) payment model.  Value-based care programs aspire to change that dynamic, so patient outcomes improve, and providers earn more, all while keeping costs down.

What is Value-Based Care

Value-based care ties the amount healthcare providers earn for their services to the results or outcomes they deliver for their patients.  Factors such as the quality, equity, and cost of care are considered.

VBP models are designed to encourage the delivery of high-quality, cost-effective care while reducing avoidable utilization of services.

Basically, the goal of value-based care programs is to hold providers more accountable for improving patient outcomes through financial incentives and other methods, while also giving them greater flexibility to deliver the right care at the right time.

Value-based care has four basic aims: 

  • better outcomes;
  • lower costs;
  • improved patient experiences; and
  • better clinical experience.

Fee-For Service Model Compared

Fee-for-service (“FFS”) healthcare is basically a method in which doctors and other health care providers are paid for each service they perform (reimbursements are based solely on what services a healthcare organization provides). 

Accordingly, under FFS, providers are paid more if they deliver more services, which consequently encourages providers to fill as many beds and perform as many procedures as possible – even if they don’t achieve desired results.  

Essentially, under FFS, providers are rewarded for volume!  This often results in driving up the cost of healthcare, but it does NOT improve patient outcomes.

Value-based care, on the other hand, makes the reimbursement contingent upon the quality of the care provided, by focusing on the quality of the outcome.

Basically – by connecting reimbursement to outcomes, under value-based care, providers are incentivized to prioritize patients’ health!

Both Medicare and private insurers have started to adopt value-based models and providers have had to rethink how they can conform to a new system while meeting budgetary limitations. 

Pivoting to a value-based model requires major changes on the part of healthcare providers, not only in the thought process regarding how healthcare is provided, but also in the way providers communicate, and the checks and balances used to monitor how patients are progressing.

VBP models are designed to encourage the delivery of high-quality, cost-effective care while reducing avoidable utilization of services.

Types of Value-Based Care

When undertaking meaningful healthcare reform, the ultimate question is:  how are the services going to be paid for?  And, as always, the answers to that question are numerous and complex.

The difference with any contemplated transition to value-based care, however, is that many of the payment solutions are already in place and provide the opportunity for healthcare organizations to pick /design one that works best for them.

All value-based reimbursement arrangements emphasize quality over quantity of services provided – and there are four main forms of supporting value-based care:

1. Performance-based payments:

In addition to traditional FFS payments, a provider organization receives an additional payment based on achievement of certain metrics or completion of certain activities.

2. Bundled:

In a bundled system, healthcare providers cut back on services that are usually bundled together.  Instead of paying separately for hospital, physician, and other services, a plan bundles payment for services linked to a particular condition, procedure, or service (e.g., a hospital stay or an office visit). 

A provider organization can keep the money it saves through reduced spending on some component(s) of care included in the bundle.  This allows patients to personalize their care and avoid services they don’t need and providers can pocket the cost savings in the process. 

3. Shared Savings and Risk:

For both Shared Savings and Shared Risk Models: a provider organization is paid using the traditional FFS model, but the pay is based on quality and spending targets, (basically, spending must stay at or below the spending targets).  

Typically, all provider departments will work towards reducing spending and meeting budgetary requirements.  At the end of the year, there is a reconciliation where total spending is compared with a target.  If the provider organization’s spending is below the target, it can share some of the difference as a bonus. If a provider organization spends more than the target, it must repay some of the difference as a penalty.

To put it more plainly:

  • In a shared savings system, providers share savings, but not risk.  If the provider organization’s spending is below the target, it will be eligible to share in the savings it achieves (also known as performance payments).  However, if they spend above the target, they don’t incur penalties from the payer.
  • In a shared risk model, (also known as a downward risk model) the provider is accountable to the payor.  Spending must stay at or below the spending target, or the provider will have to cover all or part of the excess costs.  The potential economic rewards are increased, but so are the risks.

4. Global Capitation:

In a global capitation system, short-term and long-term patients share costs amongst each other, and the payment model is based on a per-person, per-month (PP/PM) contract. Basically, a provider organization receives a fixed payment (e.g., per-person, per-month), that is intended to pay for all individuals’ care, regardless of what services they use.  This system can help reduce the financial burden of the healthcare provider while ensuring patients receive quality care. 

When it comes to health care reimbursement models, there is no one “right” solution. The choice depends on each payer’s capabilities and goals.

Several combinations of the above types exist, as do less-common methods of cost management. Health care stakeholders face unique opportunities and challenges when it comes to successfully implementing value-based health care reimbursement because each value-based system can be tailored to the organization using it.  Accordingly, even within specific industries and functions, individual organizations should view implementing new payment models through their own unique, strategic lens.


In summary, FFS reimbursement models: 1) compensate for quantity, rather than quality, 2) don’t take patient outcomes into account when determining reimbursement amounts, and 3) can lead to unnecessary tests and treatments when less-invasive, less-expensive options may be available and more desirable.

In contrast – Value-Based Care models connect reimbursement to patient outcomes, and under value-based care, providers are incentivized to prioritize patients’ health!

The current healthcare revolution is taking place in the continued shift from fee-for-service models to a system of value-based care.

The revolution will not be televised – for more information – check out our next article – Value Based Care – the Benefits, Challenges, and Future.


Neal Benjamin

Neal Benjamin is a licensed pharmacist and practicing attorney assisting long-term care, home health, and retail pharmacies in a variety of legal matters, including nonexclusively, operations, licensing, regulatory compliance, PBM[JM1] audits, and pharmacy sales and acquisitions. Neal’s practice is active in regulated cannabis, Drug Enforcement Administration (“DEA”) and healthcare regulatory compliance; cannabis and start-up business planning and permitting, as well as general corporate matters.