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Advantages and Disadvantage of Fee for Service

There appears to be a general agreement that Fee for Service (FFS) payment is a malicious practice leading to overprovision, disorganization and uncontrollable health expenditures. The assumption is that FFS encourages physicians to deliver more and unnecessary services to maximize their income. However, physicians have traditionally been paid FFS and it continues to be the dominant method in most countries.

Advantages and Disadvantages of Fee for Service

Physicians have favored FFS because they would be reimbursed for delivering the best care to patients according to their professional standards. Physicians have also claimed that they waive payment for patients unable to pay by providing charity care with the balance met by charging rich patients.

This healthcare business model has been criticized as being a facade for hiding the self-interest of the physician as an individual and as a group. There has been sharp awareness of the need for equity and transparency, not just in the US, but many countries, and not individual physicians, who assumed the primary responsibility for making appropriate care available to all.

However, the same asymmetry of information that exists between the patient and the physician also exists between the government and physicians. Therefore, the government must co-opt doctors in pursuing their goals. They must find a middle ground between what the governments can afford to spend on health care, and the extent of services that health professionals believe they should provide, and, equally important, how much their income should be. But this depends on the resources available and on how much the rich and healthy are prepared to pay for the health expenditures of the poor and chronically ill. The latter has never been specified, but a common assumption is that physicians should earn a ‘comfortable income’.

What is common with the above alternative methods of payment is that they require more complex mechanisms than regulating FFS to ensure they function appropriately. This is to some effect inevitable as they were designed for the highly sophisticated U.S. healthcare system. Capitation payment in primary care may appear attractive, but aside from the caveats described, many countries have difficulty in attracting physicians to general practice.

As a practical problem, FFS will remain the dominant method of payment for privately financed healthcare. In particular, for physicians who have newly opened offices, FFS would be the only feasible option as the transfer of capitation payment from existing ones is difficult. Since physicians in many countries have dual appointments, they have every incentive to direct patients to privately financed facilities (either co-located to a public hospital or stand-alone). Patients who are able to pay can avoid queues, enjoy better amenities and access to perceived high-quality care. Thus, as general income levels rise, the share of privately financed services is likely to increase and so will the disparity. Moreover, private payment is not restricted to private facilities: publicly financed facilities may continue to charge patients for services not covered (extra-billing) or to charge more (balance billing), which will defeat the purpose of introducing DRGs or capitation.

The disadvantage of a Fee-for-Service (FFS) health plan is that you pay a lot for freedom. First of all, before you even schedule an appointment with a physician, you are coughing up a higher premium than your buddies with HMOs, PPOs, or POS plans. And once you get to your appointment, you have to pay in full, out-of-pocket for the visit. Remember, no discounts here. And if the physician charges more or treatments cost more than what your plan deems then you cover the difference.

Finally, the responsibility falls on you and your pocket to file the doctor’s bill to be reimbursed by your insurance company.

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