Fee-for-service vs. value-based healthcare

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With the University of Alabama at Birmingham online MBA degree program, students can pursue several concentrations that allow for increased specialization and focus on a particular industry. The health services concentration, for example, offers students the powerful opportunity to focus their education on management, administration, and oversight in the healthcare industry. Understanding the concepts of value-based and fee-for-service healthcare and recent changes in the market that will influence providers, payers and patients for some time to come, is vital.

A close-up view of a doctor’s shirt, tie, jacket and stethoscope.

What are fee-for-service and value-based healthcare?

The best way to understand the differences between these two forms of planning, providing, and paying for care is to look at their similarities. Fee-for-service and value-based healthcare are both currently in use in the healthcare industry. These two models are recognized by providers, individual physicians, nurses, support staff and administrators, private insurance companies, and federal programs such as Medicare and Medicaid.

Fee-for-service healthcare

Fee-for-service healthcare is the traditional model that has been used since the current approach to healthcare administration was developed. It’s a straightforward method of tracking, quantifying, and paying for care provided to insured patients. Services have specific costs associated with them. After a provider renders a service, the insurer ultimately pays the provider based on previously agreed-upon rules.

This approach has some significant advantages, including the ease with which services can be billed and reimbursed. Although healthcare billing is often a complex affair, this approach makes payment for basic services, at least, relatively simple. The established nature of fee-for-service healthcare is also a positive. The system is familiar to everyone with experience in the healthcare world, which means there’s a widespread level of comfort that can make navigating the process easier.

However, there are also some notable drawbacks to the fee-for-service model. One of the most notable is the lack of differentiation in terms of healthcare and patient outcomes. Providers are reimbursed only based on the provision of service, which removes the quality of the care rendered from the equation. It also doesn’t consider the cost efficiencies provided by a higher standard of care. A patient who makes repeated visits tied to an easily diagnosed, addressed, and managed medical issue incurs a much more significant cost than a patient who has the same issue addressed during a small number of visits. When the only condition for payment is the provision or absence of providing care, there’s no way to incentivize providers to make operational improvements or offer higher-quality care.

Value-based healthcare

Value-based healthcare takes a qualitative approach to the care providers render to patients. In a value-based healthcare program, providers are paid based on outcomes. It incentivizes healthcare providers to create care situations where there are few or no complications. It also supports positive results for patients, such as a higher emphasis on education of at-risk populations and provision of preventative care. One of the major goals of value-based healthcare is to reduce the incidence and worsening of chronic medical conditions, which creates major benefits for payers, providers, and patients alike.

This approach to healthcare helps address some of the more significant drawbacks seen in the fee-for-service model. The model is structured to reduce costs for everyone involved, anticipating and incentivizing preventative efforts in a way that the fee-for-service model can’t easily accomplish. It also encourages information sharing between different facilities and providers when appropriate, creating stronger and more connected support networks for patients.

Value-based healthcare is most strongly associated with Medicaid and Medicare, but a more general shift toward this model throughout the industry is a growing possibility. Although 100-percent, universal application of value-based care is by no means imminent, it’s primed to become more common in the near future.

How UAB prepares students for a rapidly changing healthcare world

Earning an online MBA degree with a health services concentration helps students understand a variety of unique considerations within the world of healthcare. In such a highly regulated yet vital industry, understanding how common business principles and best practices function in this specialized market is vital. UAB helps students learn in a broad-based MBA curriculum and develop knowledge relevant to the healthcare world.

With a fully online educational environment, students progress through coursework at their own pace and can balance other personal and professional obligations with their studies. Other advantages range from experienced, top-flight faculty to a diploma identical to those MBA graduates who study on campus receive. To learn more about what UAB has to offer, get in touch with an enrollment advisor today.

Recommended Reading:

What sets the online MBA program at UAB apart from the rest?

What is an MBA?


UAB Collat School of Business: Course Descriptions MBA

UAB Collat School of Business: Online MBA Degree Program

New England Journal of Medicine: What is Value-Based Healthcare?

National Institutes of Health: Changing Landscape: From Fee-for-Service to Value-Based Reimbursement

CMS: What are the Value-Based Programs?