Modified Fee for Service + P4P
Fee for service, which is the predominant way monies are transferred from pay to provider in the medical care system, is also a major payment model in behavioral health. Although it’s been with us a long time, there are some useful things to say about it.
Fee for Service (FFS) Definition: Separate payment to a healthcare provider for each service or product provided to a patient.
Fee for Service is the poster child of paying for volume instead of value because the built-in incentive is to provide more service due to payment being dependent on quantity of care, rather than quality. That said, the Fee for Service Payment Model remains the predominant payment model five years after the signing of the Affordable Care Act and appears to not be going away soon.
Why Fee for Service isn’t Dead: There at least three reasons why Fee for Service is still with us:
Modified Fee for Service + P4P for Service Definition: Separate payment to a healthcare provider for each service or product provided to a patient that is governed by a pre-determined set of authorization and utilization management rules in order to limit the volume of unnecessary services. The authorization and utilization management generally define how much of what type of services can be provided without pre-authorization. This model also includes a Pay for Performance bonus layer to incentivize better care, better health, and better cost. P4P is discussed in detail in the P4P section.
Important Caveat #1 – FFS + P4P Bonus Size
There is a robust debate about the minimum bonus size needed to make a dent in the volume-based incentives that exist under fee for service. Experts working in the field appear to agree that the bonus payment must be at least 5% of the total payment to motivate change in providers’ behavior. Others say that the minimum is 10%.
“Using a 1% incentive to fundamentally change a practice is a joke.” R. Adams Dudley, UCSF, 2011 Pay for Performance Summit.
Important Caveat #2 – FFS + P4P Bonus = a Transition Payment Model
There is increasing agreement that a Modified Fee for Service + P4P Bonus layer should only be considered a transition payment model in the way to more meaningful payment reform. Harold Miller, one of the leading healthcare payment reform experts in the country (www.chpqr.org) minces no words on this topic.
Fee for Service (FFS) Definition: Separate payment to a healthcare provider for each service or product provided to a patient.
Fee for Service is the poster child of paying for volume instead of value because the built-in incentive is to provide more service due to payment being dependent on quantity of care, rather than quality. That said, the Fee for Service Payment Model remains the predominant payment model five years after the signing of the Affordable Care Act and appears to not be going away soon.
Why Fee for Service isn’t Dead: There at least three reasons why Fee for Service is still with us:
- Measuring Value instead of Volume: We haven’t made enough progress in measuring value of quality in order to replace measuring volume. Until we do, we need some way to match payment to different types of service and Fee for Service remains the default.
- Moving Risk to Providers: Moving beyond Fee for Service means shifting risk from the payor to the provider (see the Payment Models and Risk/Reward section below). This is a scary concept for many provider organizations that have not operated in a risk-bearing environment. For other providers who are risk-savvy, they may have run the numbers and decided that the risk the payor is pushing off to them is a bad business deal with little opportunity for reward.
- Payor and Provider Infrastructure: A number of payors and providers only have the technical capacity to administer a Fee for Service payment model. There are numerous instances where an effort was begun to move to bundled payment for sub-capitation only to find that the payor’s computer systems were unable to handle the business rules without massive and time-consuming reprogramming.
Modified Fee for Service + P4P for Service Definition: Separate payment to a healthcare provider for each service or product provided to a patient that is governed by a pre-determined set of authorization and utilization management rules in order to limit the volume of unnecessary services. The authorization and utilization management generally define how much of what type of services can be provided without pre-authorization. This model also includes a Pay for Performance bonus layer to incentivize better care, better health, and better cost. P4P is discussed in detail in the P4P section.
Important Caveat #1 – FFS + P4P Bonus Size
There is a robust debate about the minimum bonus size needed to make a dent in the volume-based incentives that exist under fee for service. Experts working in the field appear to agree that the bonus payment must be at least 5% of the total payment to motivate change in providers’ behavior. Others say that the minimum is 10%.
“Using a 1% incentive to fundamentally change a practice is a joke.” R. Adams Dudley, UCSF, 2011 Pay for Performance Summit.
Important Caveat #2 – FFS + P4P Bonus = a Transition Payment Model
There is increasing agreement that a Modified Fee for Service + P4P Bonus layer should only be considered a transition payment model in the way to more meaningful payment reform. Harold Miller, one of the leading healthcare payment reform experts in the country (www.chpqr.org) minces no words on this topic.
True payment reform cannot be achieved by adding new layers of bonuses and penalties on top of what is still fundamentally a fee-for-service payment system. Moreover, to be successful, a new payment system needs to be more attractive for providers than fee-for-service payment, not less, while still reducing costs for payers and improving quality for patients. |
Important Caveat #3 – Adequate Payment
Modified Fee for Service should be priced at rates that are “adequate to cover the providers’ costs of delivering the new approach to care at the levels of quality that are expected for the types of patients they see and at the levels of cost or efficiency that are feasible for them to achieve.” (The Building Blocks of Successful Payment Reform, Harold Miller, NRHI/CHQPR, 2015, http://www.nrhi.org/uploads/nrhi_pymntrfrm_3_r9-2.pdf) Pricing below the level of what it costs to provide efficient care will result in reduced quality and the inability to achieve the triple aim.
Caveat #3 has important implications for P4P models that are based on a withhold where the full payment can be earned only if performance measures are met. FFS withholds are only advised when a provider organization can live within the reduced budget. Generally, FFS withholds are not advised because they diminish the ability of the provider organization to field a quality workforce.
Modified Fee for Service should be priced at rates that are “adequate to cover the providers’ costs of delivering the new approach to care at the levels of quality that are expected for the types of patients they see and at the levels of cost or efficiency that are feasible for them to achieve.” (The Building Blocks of Successful Payment Reform, Harold Miller, NRHI/CHQPR, 2015, http://www.nrhi.org/uploads/nrhi_pymntrfrm_3_r9-2.pdf) Pricing below the level of what it costs to provide efficient care will result in reduced quality and the inability to achieve the triple aim.
Caveat #3 has important implications for P4P models that are based on a withhold where the full payment can be earned only if performance measures are met. FFS withholds are only advised when a provider organization can live within the reduced budget. Generally, FFS withholds are not advised because they diminish the ability of the provider organization to field a quality workforce.