Fee-for-Service vs. Bundled Payments: Prioritizing the Right Healthcare Model for Your Employees
In the U.S. healthcare system, the traditional fee-for-service (FFS) model has long been the standard, but bundled payments (and other value-based payment models) are emerging as a compelling alternative. Understanding the distinctions between these models can help you make an informed decision that benefits both your employees and your organization.
Understanding fee-for-service model
Fee for service (FFS) is a payment model in which healthcare providers are reimbursed for each individual service they perform, be it a consultation, test, or procedure. This approach offers flexibility, allowing employees to access a wide range of services as needed. However, it can lead to unpredictable—and often insurmountable—costs for both the patient and the employer, and it can incentivize the provision of unnecessary services, as providers are paid based on the volume of care delivered.
(Learn more about fee-for-service in healthcare and how it operates in traditional care systems.)
Bundled payments in healthcare
In contrast, bundled payments represent a shift towards a more coordinated and cost-effective healthcare delivery system. Under this value-based model, providers receive a single, comprehensive payment that covers all services related to a specific episode of care, such as a knee replacement surgery, cardiac procedure, or a full course of cancer treatment. For example, a bundled payment would cover everything from pre-surgical consultations and the procedure itself to post-operative rehabilitation and related follow-up care. This encourages collaboration among healthcare professionals, with a central focus on delivering efficient, high-quality care.
Bundled payments are gaining traction for a reason—they have been proven to lower costs while improving health outcomes.
Fee-for-service vs. bundled payments
When comparing these models, several key parameters emerge:
- Cost predictability: FFS can result in variable and often higher costs due to the accumulation of individual service fees. Bundled payments, on the other hand, offer more predictable expenses, as a single payment covers an entire episode of care, typically leading to meaningful cost savings for both the patient and their employer.
- Care coordination: FFS may lead to fragmented care, with multiple providers working independently. The bundled payments healthcare delivery model incentivizes providers to work together, enhancing care coordination and potentially improving patient outcomes.
- Quality of care: In the FFS model, the emphasis is on the quantity of services rendered, which doesn’t necessarily correlate with better patient outcomes. Value-based payment models like bundled payments focus on the quality of care, rewarding providers for efficient and effective treatment.
- Financial risk: FFS places financial risk primarily on payers, as they are responsible for covering the cost of each service. With bundled payments, at least some of thefinancial risk shifts to providers, encouraging them to manage resources wisely so they stay within the pre-negotiated bundled payment amount.
- Administrative complexity: FFS involves straightforward billing for each service, and this can become quite complex as there are multiple claims for a single episode of care. Bundled payments simplify billing by consolidating services into a single payment. It is worth noting, though, that establishing the bundled payment agreements upfront can be complex—but they save a lot of time and effort once they’re in place.
Why should employers consider partners that provide bundled payments?
For employers seeking to provide high-quality, cost-effective healthcare to their employees, choosing the right healthcare partners is key. Partners that embrace value-based care models, such as bundled payments, can help drive better health outcomes and cost savings. By promoting care coordination and focusing on patient outcomes, these partners contribute to a more sustainable healthcare strategy for both employees and the organization.
The process starts with understanding the unique needs of the workforce. Employers should evaluate employee health trends, common conditions, and patterns of healthcare utilization. From there, selecting healthcare partners that have a proven track record with value-based models ensures that care is both effective and financially aligned with organizational goals.
Equally important is balancing potential cost savings with ease of implementation. Partners that offer administrative simplicity alongside measurable improvements in employee health outcomes are often the best fit for long-term success.
If you’re exploring ways to control healthcare costs while improving outcomes, now is the time to assess potential healthcare partners. For employers still weighing options, this RAND Corporation study on bundled payments offers compelling data to support partnering with organizations that deliver true value-based care.
Connect with Carrum Health to see how bundled payments can fit into your company’s benefits strategy and support the health of your workforce. And while you’re at it, explore other value-based care alternative payment models that are transforming how care is delivered and reimbursed
