What Is Fee For Service In Healthcare?


Fee for service (FFS) is the most traditional payment model of healthcare. In this model, the healthcare providers and physicians are reimbursed based on the number of services they provide or their procedures.

Payments in an FFS model are not bundled. This means that the insurance companies or the government agencies are billed for every test, procedure, and treatment rendered whenever a patient visits the doctor, has a consultation, or is hospitalized. This payment model rewards physicians for the volume and quantity of services provided, regardless of the outcome.

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What Is The Fee For Service Health Plan?

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Before the value-based care initiative, the fee-for-service health plan was the customary type of health care insurance. Also identified as indemnity plans, the FFS coverage is most pricey; however, a fee-for-service health plan provides complete independence and flexibility to those who can afford it. 

FFS allows the clients to freely choose their physicians and hospitals, with very little interference from the insurance provider. A fee for service health plan demands high out-of-pocket expenses as clients may be required to pay their medical fees upfront and submit bills for reimbursement

What Is Medicare Fee For Service?

Medicare Fee for Service is a program, which offers two-part insurance. This includes hospital insurance along with supplementary medical insurance for eligible citizens. Generally, hospital insurance offers coverage for hospitalization, admission to hospice or a nursing facility, tests, surgical procedures, and provision of health care at home. 

The supplementary part of the Medicare fee for service program provides coverage for services offered by healthcare providers, including physicians, outpatient care, medical equipment, and certain preventive care.

Has Fee For Service Been Phased Out?

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In the past years, several healthcare policy reports called for a phase-out of the FFS plan. The reports considered FFS one of the causes of uneven care, excessive services, and healthcare inflation. 

The healthcare providers face challenges in medical billing as the system gradually moves from a traditional model of FFS to a whole new model of value-based care. 

The FFS measure reimburses according to the number of services and treatment of diseases and injuries as they occur. On the other hand, value-based care reimburses for the value of services and preemptive health management, which calls for inhibition of diseases and injuries and identifying conditions at early stages to reduce the cost of treatment. 

Sooner or later, the health care system would go for a reimbursement model where monetary benefits are persistently aligned with coordinated and quality care delivery at the best price.

The overall revenue of fee-for-service reimbursements in 2016 dropped to 43% compared to 62% during 2015. 

Fee for service-based medical billing arrangements with a hybrid of value-based care rise to 28% from 15%, and pure value-based care model accounted for 29% as per the statistics issued by the Health Care Payment Learning and Action Network of the Centers for Medicare & Medicaid Services. 

This represents that federal determination towards unconventional medical billing has started to show its impact. However, the fear of the unknown has been holding several medical practitioners to join Clinically Integrated Networks (CIN) or Accountable Care Organizations (ACO). Despite its persistent failures, FFS is still preferred because it is familiar.

Problems with Fee-For-Service Healthcare

Many experts have argued that the development in modern medicine, complications of the current healthcare structure, and the healthcare requirements of a population with chronic illnesses have outdated the capability of fee for service in healthcare. Both industry experts and lawmakers believe that the medicinal evolutions have compromised the FFS model. 

The third-party payers have supported the overutilization of FFS, and FFS has stimulated the least financial responsibility on both patients and providers.

Fee for Service Advantages and Disadvantages

Advantages & Disadvantages


  • Patients receive highly valued service and the provider is able to offer suitable recommendations.
  • Physicians can charge a reasonable amount for a plan and can be agile to offer precise assistance to their patients.


  • Fee for service provides very little or no reward for delivering holistic and value-based care.
  • FFS incentivizes doctors to order unnecessary tests and procedures to generate more income, and encourages them to practice “defensive medicine.”
  • Restricted to personal visits and serves as a roadblock in the treatment of conditions through unconventional methods.
  • FFS leads to an increase in overall healthcare costs over time since patients and providers are not fiscally accountable.

Future of Fee-For-Service in Healthcare Financial Modeling

FFS model has come under intense scrutiny for overutilization of services and overburdened third-party payers involving health insurance companies or government programs (e.g., Medicare and Medicaid). 

Even though policymakers and government agencies favor a shift away from fee-for-service towards a value-based care model, it is doubtful that the providers will completely move away from the FFS model in the future. The overall effect or acceptance of the FFS model has been diluting. 

In fact, many organizations accepting bundled payments, or capitated payments, still pay physicians based on productivity or volume, which is the core of FFS. So even though the fee-for-service model is vulnerable to overutilization and fragmentation, many believe it will always have its place in modern healthcare.

Healthcare Professionals

Infographic- Value-Based Care Positively Impacts Consumers

Impacts of value-based healthcare
Image Source - Healthcare Intelligence Network

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