Fee for Service vs Value-Based Care: What Are the Differences?

Key Takeaways:

• Fee-for-service rewards the number of services delivered, whereas value-based care ties payment to patient outcomes, efficiency, and coordinated care.

• Value-based care emphasizes proactive management of chronic conditions, reduced hospital readmissions, and patient-centered approaches.

• Transitioning to value-based care requires new workflows, robust EHR systems, data tracking, and shared financial risk.

• Successful VBC programs demonstrate improved patient independence, stronger provider-patient relationships, and cost-effective care.

We often still think of healthcare as a system where more tests, scans, and visits automatically mean better care. But the truth is, doing more doesn’t always make patients healthier.

Today, a new delivery model is gaining momentum: value-based care. And it’s not just about changing payment models for providers, but changing mindsets and the way healthcare has been functioning for decades. 

We’ve seen the promise, but also the challenges: new workflows, data tracking, and shared financial risk that can feel overwhelming.

In this blog, we’ll break down what value-based care really means, how it compares with the traditional fee-for-service model, and the pros and cons of each.

What Are Fee-for-Service and Value-Based Care Models?

Fee-for-service is the legacy care delivery model most healthcare providers have been using to get reimbursed for the services delivered. A blood test, an MRI scan, and a follow-up visit—all are billed and paid for separately, regardless of whether the patient gets better or the service was necessary.

On paper, this sounds fair: more work, more payment. But in practice, it creates a system where quantity often overrides quality.

On the other hand, value-based care (VBC) shifts the focus from volume to value. Instead of reimbursing providers for every service performed, it rewards them for improving patient outcomes, reducing unnecessary interventions, and managing the total cost of care, rather than simply checking off services.

What Is the Primary Difference Between Fee-for-Service and Value-Based Care?

The core difference between fee-for-service and value-based care lies in what gets rewarded.

In fee-for-service, doing more tests, procedures, and visits translates directly to more revenue. But this often results in duplicated services, fragmented care, and higher costs, without necessarily improving patient outcomes.

In contrast, value-based care ties reimbursement to results. Providers are encouraged to:

• Prevent complications before they happen
• Manage chronic conditions proactively
• Reduce hospital readmissions
• Coordinate care across the continuum

As noted in a ResearchGate study comparing the models: 

“Fee-for-service models often generate higher expenditures with inconsistent quality outcomes, whereas value-based systems aim to control cost through improved care delivery and accountability.”

The table below highlights all the differences between the two models in detail:

Pros and Cons of Fee-for-Service and Value-Based Care

Both fee-for-service and value-based care models have their strengths and serious limitations.

Fee-for-Service Pros and Cons

Value-Based Care Pros and Cons

What Value-Based Care Looks Like in Real Life

Here’s a real-world value-based care example that shows how powerful this model can be when done right.

Thanks to a CMS value-based kidney care program, Virginia teacher Connor Samuel was able to choose home dialysis, allowing him to keep working with at-risk students while managing end-stage kidney disease. Instead of frequent clinic visits, he now receives treatment at home with his wife’s support. 

This flexible, patient-centered approach exemplifies how value-based care prioritizes outcomes, independence, and quality of life, not just services rendered.

How Do Providers Feel About Value-Based Care?

Provider sentiment on value-based care is mixed: there’s optimism around its potential, but also concern over risks and complexity.

Some providers are seeing promise in the VBC model as VBC models lead to more preventive care, fewer hospitalizations, and stronger patient relationships. For example, in Humana’s VBC arrangements, patients visited primary care clinicians 10% more, saw 32% fewer hospital admissions, and experienced higher satisfaction.

However, there are some concerns that are holding the providers back. Providers who are exclusively in VBC models feel substantial financial risk, underscoring the burden of performance-based arrangements.

Transitioning From Fee-for-Service to Value-Based Care

As payment models evolve, operational demands continue to rise. That’s where RCM leaders play a crucial role in accounting for:

• Different clinical documentation standards for FFS vs. VBC
• Payer-specific rules tied to quality metrics, risk adjustment, and bundled payments
• The need to audit and validate codes not just for reimbursement, but for compliance with population health goals
• Avoiding denials tied to missing or misaligned metrics in value-based contracts

That’s why infrastructure matters more than ever. AI and automation can help fix this gap between the fee-for-service and value-based care models. Whether it’s supporting accurate HCC capture, coding for new risk models, or validating quality-linked claim elements, the right tools can reduce the burden on teams and improve payment integrity across the board. 

Curious to know how CombineHealth’s AI Agents can help in your RCM processes? Book a demo!

FAQs

How are providers paid in value-based care?

Providers are paid based on patient outcomes rather than service volume. Models include pay-for-performance, shared savings, bundled payments, and capitation, rewarding efficiency, quality care, and improved health.

Why is value-based care an improvement over fee-for-service?

VBC focuses on outcomes, prevention, and coordination. It discourages unnecessary procedures, improves patient health, reduces costs long-term, and enhances patient experience compared to fee-for-service, which rewards volume over quality.

Is value-based care cheaper?

Potentially yes, by reducing hospitalizations and unnecessary procedures, value-based care is cheaper. However, short-term costs may rise due to infrastructure and staffing, but long-term savings and better patient outcomes often offset these expenses.

Is value-based care failing?

Value-based care is not failing, but evolving. Early programs showed mixed results due to patient complexity and infrastructure gaps. Improvements in incentives, data systems, and care coordination are increasing effectiveness.

What are the disadvantages of value-based care?

High upfront costs, administrative burden, financial risk, challenges with complex patients, and slow adoption are major drawbacks despite potential long-term benefits.