Fee-for-Service, or Payment for Outcome

Healing Health CareGuest article by Ray Collins

Fee-for-service (FFS) is a payment model in which every test, procedure, office visit has a price. Since it is the predominant model in the US, it has driven and will continue to drive health care costs higher until it is abolished. Since the health care industry favors this payment model, all cost control attempts have failed. This model makes no price distinction between whether your health improves with treatment or not. Payment for outcomes is being attempted not only to control costs but to reward good outcomes for patients, unlike FFS. The legal mechanism for the change to payment for outcomes is the Accountable Care Organization, a creation of the Patient Protection and Affordable Care Act. Here is an excerpt from Brian Klepper’s post at KevinMD, Hostage to a payment method that puts the interest of patients last.

After all, excess has served healthcare well. A payment structure that values only appropriate care could devastate revenues for the professionals and organizations at the table.

Fee-for-service has made healthcare a merchant enterprise. Every product and service delivers a margin, and so the industry does as many as possible. The payment system’s clear incentive is to deliver more care, and more expensive care, where the absolute profit dollars are higher.

We have become hostage to a payment method that, more often than not, puts the financial interests of doctors, hospitals, and corporations above the interests of patients and purchasers of care.

There is no incentive, no market pressure, for fewer procedures, tests, and consultations at lower costs, or for care that is most likely to produce a good outcome.
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About the author

Ray Collins is a Medical Editor specializing in editing English translations from numerous languages, including primarily Japanese, Chinese, German, French and Spanish. He lives here in Austin, Texas and has experience editing Genetic Engineering, Clinical Trials, and Process Validation documents, SOPs, Journal Articles and Patents. He has given me permission to republish articles from his personal blog.


I’ve posted several other articles about the perverse profit incentives of FFS and our broken sick-care system. One is a summary of Steven Brill’s 38-page special report for TIME Magazine, including his video introduction. Brill dives into our health care system to understand why things cost so much, avoiding the more traditional question of who pays for what, and instead uncovering the big profit centers that fight to preserve FSF. They include: the hospitals, insurance companies, drug companies, equipment providers, and testing companies.

I often editorialize and complain about how our nation wastes well over a trillion dollars each year as we pretend to have a healthcare system but actually have an insurance-based, fee-for-service Disease Management system. This system profits from illness and injury and has perverse incentives (and a legal requirement) to maximize those profits for shareholders rather than serve society. Follow the money, and you’ll see that our “system” doesn’t want you to die but doesn’t profit when you get well either, or when you are healthy and don’t need care. So, instead we treat symptoms and view patients as paying customers with the real objective of keeping them paying.

I’ve made many recommendations for health reform over my time here, including this proposed hybrid public/private model.