The Fee-For-Service Payment System in Healthcare

The fee-for-service (FFS) payment system has been traditionally used as a healthcare reimbursement model. Based on the compensation for the volume of services, this payment system implies a serious problem. In many cases, it results in overtreatment, which could be harmful to patients. Therefore, possible ways of FFS system improvement should be investigated. In this essay, a significant problem with FFS payment structures used in the healthcare industry will be discussed, and a solution of using the bundled payment method will be proposed.

Under the FFS payment system, healthcare providers receive payment for the services performed, that is for each test and treatment procedure. This approach is often criticized by health care experts, as it encourages medical providers to “spend more … instead of focusing on delivering value and improving health outcomes” (Adida et al., 2017, p. 1606). For example, it is observed that expensive tests and treatment procedures are prescribed more frequently than guidelines recommend.

In light of this, several experiments of the FFS system improvement have been recently conducted. One of them is the application of the bundled system’s principles in it. Unlike FFS, the bundled payment model is based on reimbursement for the whole episode of treatment. Therefore, when the bundled payment model is used, health care providers are concerned with the cost-efficiency of the prescribed actions and tend to achieve better outcomes by cheaper means.

However, the balance of FFS and bundles payment systems should be adjusted in each particular case. For patients with complicated cases, the FFS system may be preferred. As the total cost of the treatment may exceed its average level, some patients may be neglected. Bundled payment is recommended in case of a small patient pool size, whereas if the pool size is large, FFS ensures shorter waiting time (Guo et al., 2018). In addition, blending FFS and bundled systems is beneficial in a patient-centered medical home treatment model (Miller et al., 2017). In this case, joint procedures are performed by the group of clinicians and often cannot be attributed to one particular member.

In summary, the FFS system, although widely used in the US healthcare system, contains considerable drawbacks. Its improvement may be achieved by the implementation of bundled payment principles in it. However, the balance between the two systems’ elements needs to be adjusted in each particular case to ensure the best patient outcomes and cost-benefit advantage for patients and medical providers.


Adida, E., Mamani, H., & Nassiri, S. (2017). Bundled payment vs. fee-for-service: Impact of payment scheme on performance. Management Science, 63(5), 1606–1624.

Guo, P., Tang, C. S., Wang, Y., & Zhao, M. (2018). The impact of reimbursement policy on social welfare, revisit rate, and waiting time in a public healthcare system: Fee-for-service versus bundled payment. Manufacturing & Service Operations Management, 21(1), 1-17.

Miller, B. F., Ross, K. M., Davis, M. M., Melek, S. P., Kathol, R., & Gordon, P. (2017). Payment reform in the patient-centered medical home: Enabling and sustaining integrated behavioral health care. American Psychologist, 72(1), 55–68.

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