What is value-based care vs fee-for-service?

FFS dominates US healthcare payment but VBC is growing. In 2021 the CMS Innovation Center set a goal of having all Medicare beneficiaries, and the vast majority of Medicaid beneficiaries, in an accountable relationship by 2030; its May 2025 strategy keeps the direction without the date: “Move Medicare and Medicaid beneficiaries to accountable care arrangements with providers who assume global downside financial risk.” Common VBC models include the Medicare Shared Savings Program (MSSP), with 511 participating ACOs in 2026, ACO REACH, which CMS will follow with the LEAD model in 2027, MIPS, and various commercial value-based contracts. Financial mechanics differ fundamentally. Under FFS, doing more generates more revenue. Under VBC, doing the right thing for the right patient at the right cost generates more revenue, but doing too much can create financial penalties. HCPLAN's 2024 APM Measurement Effort found that in 2023, 42 percent of traditional Medicare payments and 64 percent of Medicare Advantage payments flowed through alternative payment models in its Categories 3 and 4 (shared savings, shared risk and population-based payment). For independent outpatient practices, the most common entry points are MIPS and joining an ACO (voluntary). Each requires different financial reporting and creates different income volatility. The financial planning implication: VBC creates lagging revenue, because shared savings are paid only after the performance year is reconciled, and risk-adjusted variability that traditional cash flow models do not handle well.