Which is the Right Reimbursement Model for Your Practice?

Posted by Team PracticeForces on Mar 31 2016

The National Commission on Physician Payment Reform’s report reveals that, in 2020, Medicare is “projected to consume 17 percent of the federal budget.” This large expenditure has not shown an improvement in overall patient care, as the United States ranks 37th in health status in the world. There’s no doubt that healthcare costs are increasing rapidly, while the quality of care stagnates. Many practices have joined larger medical groups in an effort to stay afloat, but this only puts a band-aid on the problem. Some argue that the old fee-for-service model (FFS) is at fault and recommend a shift to value-based care (VBC). While this is a complex problem with no clear solution, what is certain is that your medical billing reimbursement model and revenue cycle management system plays a huge role in the overall cost and quality of care. 


Typically, physicians are accustomed to the fee-for-service model in which a patient and/or payer pays for an allotted service or procedure. Yet in the last decade, the proposition to change to a more value-based payment system has become more and more prevalent, especially with Medicare shifts due to the Patient Protection and the Affordable Care Act. The Affordable Care Act (ACA) introduced the Physician Value-Based Payment Modifier (PVBPM), which is the “first national value-based purchasing program for physicians in fee-for-service Medicare” according to Andrew Ryan, PhD and Matthew J. Press, MD, MSc in an article for the Annals of Internal Medicine

In this article, we explore both fee-for-service and value-based payment models. There is no one-stop-shop reimbursement model that will be universally compatible and successful to all medical practices. However, every medical practice should be participating in the national conversation as it shifts towards a de-emphases of traditional FFS models.

Fee-for-Service (FFS)

Most patients are familiar with fee-for-service, the more traditional model in which a patient pays for services rendered. Some argue that this fee system incentivizes physicians to over-prescribe and over-provide more expensive services, posing a threat to overall patient wellness and contributing to medical cost hyperinflation.

Clearly, there are problems with high costs and inefficient care with fee-for-service. There is no regulation on misuse or overuse of procedural care, which contributes to the exorbitant fees many are currently facing with healthcare. With the current FFS model in place, “the commission concluded that our nation cannot control runaway medical spending without fundamentally changing how physicians are paid.”

However, while FFS can, and perhaps should, be de-emphasized, it can successfully play a role in niche areas across other industries, such as cosmetic surgery and dentistry. By reducing cost increases through competition, the FFS model can make certain surgeries more affordable. According to Dr. Richard Amerling, associate professor of clinical medicine at Icahn School of Medicine at Mount Sinai in New York City, the FFS model works and actually reduces cost increases through competition. In fact, he said, this is why the cost of Lasik surgery has gone down over the years.

Value-Based Care (VBC)

The commission has created a template to transition to value-based payment models over the next five years. Value-based systems are the shift toward a fixed-payment model and is designed to save costs and reward quality-improving behavior. Some of the “blueprint” improvements toward bundled payment and capitation include:

  • Elimination of the Sustainable Growth Rate (SGR)
  • A stop to higher pay for facility-based services that can be performed in a lower-cost office
  • Any fee-for-service contracts need to provide “quality metrics” to reimbursement rates
  • Fixed payments need to concentrate on chronic condition patients for optimal savings and quality improvement

By fixing a price for a complete visit or procedure such as a heart attack, physicians are dissuaded from offering costly services, and instead focus on quality and meeting the needs of patients. The focus is on the outcome, rather than the individual procedures. The argument is that physicians operating under the VBC model are more invested in the actual outcome of their patient care and diagnosis.

Shifting Medical Reimbursement Trends

Although there are Accountable Care Organizations (ACOs) and other Medicare programs in place to test reimbursement models, the fact that Medicare itself primarily runs on fee-for-service and an SGR complicates the matter. The FFS model will fade slowly, and likely not completely.

The gradual incorporation of hybrid systems and value-based payment models will likely reach throughout the nation within the decade, as projected by the commission. It is important that physicians, healthcare payers, and patients all take steps to build a better healthcare system that will provide better, more efficient patient care based on outcomes and cost-effective strategies.


Still not sure what the best course of action is for your medical practice? Don't worry. PracticeForces can help you assess your reimbursement model, and advise you as to the most profitable arrangement for your specific practice. All you have to do is request a consultation, and one of our expert consultants will be in touch!  

Request a Consulation


Topics: Medical Billing, medical practice, medical office

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