Fee-for-service

Fee-for-service (FFS) is a payment model where a service provider is paid for each service rendered, regardless of the outcome. It is most frequently discussed in the context of physician payment models, but may also apply to patents and real estate.

In health care, FFS incentivizes activity, meaning physicians and other health care providers are incentivized to provide more services, which may lead to overserving and increased payments. However, FFS offers physicians autonomy in practice and may contribute to better access for patients. However evidence of the effectiveness of FFS in improving health care quality is mixed, without conclusive proof that these programs either succeed or fail. FFS is potentially inflationary by raising health care costs. Similarly, when patients are shielded from paying (cost-sharing) by health insurance coverage, they are incentivized to welcome any medical service that might do some good. Fee-for-services raises costs, and discourages the efficiencies of integrated care. A variety of reform efforts have been attempted, recommended, or initiated to reduce its influence (such as moving towards bundled payments and capitation). In capitation, physicians are not incentivized to perform procedures, including necessary ones, because they are not paid anything extra for performing them.

FFS is the dominant physician payment method in the United States and Canada. In the Japanese health care system, FFS is mixed with a nationwide price setting mechanism (all-payer rate setting) to control costs.

FFS creates a potential financial conflict of interest with patients, as it incentivizes overutilization,—treatments with an inappropriately excessive volume or cost.

FFS does not incentivize physicians to withhold services. If bills are paid under FFS by a third party, patients (along with doctors) have no incentive to consider the cost of treatment. Patients can welcome services under third-party payers because "when people are insulated from the cost of a desirable product or service, they use more."

Evidence suggests primary care physicians paid under a FFS model tend to treat patients with more procedures than those paid under capitation or a salary. FFS incentivizes primary care physicians to invest in radiology clinics and perform physician self-referral to generate income.

While most practices have succumbed to the need to see more patients and increase FFS procedures to maintain revenue, more physicians are looking to alternate practice models as a better solution. In addition to value-based reimbursement models, such as pay-for-performance programs and accountable care organizations, there is a resurgence of interest in concierge and direct-pay practice models. When patients have greater access to their physicians and physicians have more time to spend with patients, utilization of services such as imaging and testing declines.

FFS is a barrier to coordinated care, or integrated care, exemplified by the Mayo Clinic, because it rewards individual clinicians for performing separate treatments. FFS also does not pay providers to pay attention to the most costly patients, which could benefit from interventions such as phone calls that can make some hospital stays and 911 calls unnecessary. In the US, FFS is the main payment method. Executives regret the changes to managed care, believing that FFS turned "industrious, productivity-oriented physicians into complacent, salaried employees." General practitioners have less autonomy after switching from a FFS model to integrated care. Patients, when moved off of a FFS model, may have their choices of physicians restricted, as was done in the Netherlands' attempt to move to co-ordinated care.