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As healthcare systems evolve, so do the ways in which we fund and deliver care. The fee-for-service (FFS) model has been the foundation of most payment systems worldwide for decades. More recently, Value-Based Care (VBC) has gained traction as an alternative payment model aimed at improving outcomes while managing costs. VBC payment models take a more direct approach to managing population health and each individual patient.
But what exactly is the difference between FFS and VBC? Are they mutually exclusive, or can they complement each other? And how do digital health systems support both of these goals?
Let’s break down the key differences and where each model can play a valuable role.
What is Fee-for-Service (FFS)?
Fee-for-service is a payment model in which providers are reimbursed for each service or procedure. This usually involves an in–person consultation between a doctor and patient. Other related providers, such as specialists and laboratory testing, may also be funded on a fee-for-service (FFS) basis.
Key features:
- Providers are reimbursed for each test, visit, or procedure
- Physicians are not constrained in their decision-making by predefined protocols
- Financial incentives are tied to quantity, not quality
- No incentive to integrate care or optimise utilisation
Strengths of Fee-for-Service:
- Straightforward, transactional billing system
- Encourages service availability and access
- Works well for acute, episodic care or specific interventions
Limitations of Fee-for-Service:
- Incentivises volume of care over outcomes
- Can lead to fragmented or duplicated care
- Does not encourage management to focus on long-term patient preferences
FFS remains widely used in public and private health systems because of its predictability and administrative familiarity.
Fee-for-Service example:
A patient with diabetes may see multiple specialists, each billing separately, without coordination or outcome tracking.
What is Value-Based Care (VBC)?
Value-based care links payment to quality measures, including process measures and outcomes, regarding patient care. Instead of simply paying for services delivered, providers are compensated based on results, care quality, and cost efficiency over time.
Key features:
- Payment is linked to health care quality and outcomes, patient satisfaction, and cost control
- It encourages care coordination across care settings
- Focuses on long-term wellness over episodic care
- The approach encourages patients to participate in decision-making about their care.
Strengths of Value-Based Care:
- Emphasis on improving cost-effectiveness
- Encourages preventative, proactive care
- Supports care coordination across settings
- Aims to improve population health while reducing avoidable costs
Limitations of Value-Based Care:
- Requires a robust data infrastructure, care quality, and outcome measurements.
- It is more complex to implement and manage, adding to the inherent complexity of clinical care delivery.
- Poses a financial risk to providers when fully implemented. (Providers are often encouraged to commence adoption of VBC arrangements using a “one-sided” contract where there is no penalty if costs escalate or quality deteriorates)
- It can lead providers to concentrate on fulfilling quality measures that are not pertinent to the patient’s immediate presenting complaint (e.g. achieving high vaccination rates when the patient’s current most pressing issue is out-of-control diabetes).
- Regulatory compliance requirements bring additional work and potentially stress on the clinician.
VBC example:
A care team managing a patient with chronic illness monitors their condition, provides education, and avoids unnecessary hospital visits, earning shared savings if quality and outcomes improve.
In many systems, VBC is being introduced through blended models, combining fee-for-service and performance-based payment elements.
Fee-for-Service vs. Value-Based Care: What’s the Difference?
| Feature | Fee-for-Service (FFS) | Value-Based Care (VBC) |
| Payment Basis | Services provided | Patient quality and outcomes |
| Care Focus | Episodic, acute interventions | Preventative, coordinated, long-term care |
| Risk Model | Low provider risk | Variable, can be a shared risk and rewards model, or providers may take full responsibility (including possible losses) |
| Data Requirements | Moderate | High, requires frequent quality and outcome measurements |
| Best Fit For | Specific treatments or procedures | Disease prevention, Chronic disease management, population health |
Are Health Systems Replacing FFS with VBC?
The shift from Fee-for-Service to Value-Based Care is well underway, but it’s far from absolute. Most health systems are not abandoning FFS overnight. Instead, they’re experimenting with hybrid payment models that combine their strengths.
In the United States, value-based care models such as Accountable Care Organisations (ACOs) and bundled payment programs are gaining traction.
In a strategic plan refresh published in November 2022, CMS established a target of aligning 100% of Medicare fee-for-service beneficiaries with an accountable care relationship by 2030. (1)
Meanwhile, emerging health economies explore similar approaches through pilot programs and regional initiatives.
However, fee-for-service continues to dominate many healthcare systems, particularly in specialist care, emergency services, and private-sector billing. This is mainly due to:
- Familiarity with billing structures
- Limited infrastructure for outcome measurement
- Financial risk concerns for providers
As a result, the adoption of value-based care is increasing, but most systems are adopting it gradually by layering value-based incentives over existing fee-for-service (FFS) frameworks. This measured approach enables the testing of outcomes-based models without disrupting service delivery.
Digital Infrastructure – Enabling Success Across Models
Whether a healthcare system operates under Fee-for-Service, value-based care, or a combination of both, digital infrastructure plays a vital role in facilitating efficient, high-quality care.
For Fee-for-Service:
Digital tools, such as a Shared Care Record or Health Information Exchange, aid clinicians in comprehending their patients’ clinical context and past medical and surgical history and assist with documenting the current episode. They may also help streamline billing, documentation, appointment scheduling, and claims management.
For Value-Based Care:
Success relies on access to longitudinal patient data, care coordination tools, real-time measurement, and quality and outcome tracking. Systems must share data securely among providers, integrate non-traditional clinical information types such as social determinants of health, and facilitate performance reporting. An expanded role for AI is emerging that will help alleviate the burden on physicians inherent in VBC adoption.
Top digital capabilities supporting both models include:
- Interoperability between different software solutions used at different organisations.
- Health data exchange standards, specifically including HL7 V2 and FHIR.
- Patient engagement platforms that encourage ongoing participation in care.
- Tools for remotely monitoring chronic conditions and minimising hospital readmissions.
- AI solutions that aim to reduce physicians’ burden include administrative tasks such as prior approval and population health decision-making, such as machine learning and predictive modelling.
Whether systems aim to optimise fee-for-service billing workflows or prepare for outcomes-based contracting, a solid digital foundation guarantees improved clinical decision-making and operational performance.
Fee-for-service and Value-Based Care represent two distinct yet complementary approaches to healthcare funding. Each has strengths and weaknesses, shaped by the structure of the health system, the patient population, and the type of care delivery.
As global systems continue to evolve, the focus is shifting from “either/or” to “both/and,” creating flexible models that balance volume, value, and patient needs.
Authored by Dr. Chris Hobson, Global Chief Medical Officer at Orion Health
