What is value-based care vs fee-for-service?
Fee-for-service (FFS) is a payment model where providers are paid per individual service rendered; value-based care (VBC) is a payment model where reimbursement is tied to outcomes, quality measures, or total cost of care.
Quick answer
Fee-for-service pays providers per service delivered (visit, procedure, test); value-based care pays based on quality outcomes, total cost of care, or patient population health, often with shared savings, capitation, or bundled payment structures.
The detail
FFS dominates US healthcare payment but VBC is growing. CMS Innovation Center has committed to having all traditional Medicare beneficiaries in accountable care relationships by 2030. Common VBC models include: Medicare Shared Savings Program (MSSP) ACOs, ACO REACH, Bundled Payments for Care Improvement (BPCI), Comprehensive Primary Care Plus (CPC+), 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 2024 APM Measurement Effort reported approximately 42 percent of traditional Medicare and 64 percent of Medicare Advantage payments flowed through value-based arrangements in 2023. For independent outpatient practices, the most common entry points are MIPS (mandatory for most Medicare-billing physicians) and joining an ACO (voluntary). Each requires different financial reporting and creates different income volatility. The financial planning implication: VBC creates lagging revenue (shared savings paid 12 to 24 months after performance year) and risk-adjusted variability that traditional cash flow models do not handle well.
HCPLAN 2024 APM Measurement Effort reported approximately 42 percent of traditional Medicare payments and 64 percent of MA payments flowed through VBC arrangements in 2023.
Source: HCPLAN APM Measurement Effort
CMS committed to all traditional Medicare beneficiaries in accountable care relationships by 2030.
Medicare Shared Savings Program is the largest accountable care program, with hundreds of participating ACOs.
Source: CMS MSSP
What this means for clinic owners
From Sorso
If you have meaningful Medicare exposure, value-based care is no longer a future consideration. Start by understanding your MIPS performance and modeling the financial impact of joining an ACO. The infrastructure you build for those moves prepares you for whatever payment models come next.
Related questions
What is the average net collection rate?
The average net collection rate for healthcare practices is 95 to 99 percent, with HFMA MAP Keys high-performer threshold at 98 percent or higher. Below 95 percent indicates meaningful revenue leakage.
What is the average payer mix for outpatient clinics?
The average outpatient clinic payer mix is roughly 50 to 60 percent commercial insurance, 20 to 30 percent Medicare, 10 to 20 percent Medicaid, and 5 to 15 percent self-pay, with significant variation by specialty and geography.
What financial KPIs should I track for my clinic?
The core 8 financial KPIs every clinic should track monthly are revenue, EBITDA, net collection rate, days in AR, denial rate, revenue per provider, overhead ratio, and rolling 13-week cash forecast.
How does prior authorization affect revenue?
Prior authorization causes 10 to 15 percent of denials, delays revenue by 7 to 30 days per affected service, costs providers approximately $10.97 per manual transaction (per the 2023 CAQH Index), and the AMA reports physicians complete an average of 39 prior authorizations per week and spend about 13 hours per week on prior auth.
Founder of Sorso. 19 years in corporate finance. Managed a $450M loan portfolio before building a fractional CFO firm exclusively for healthcare clinics.
Want to see how your practice measures up?
Take the 4-minute financial assessment. It is free, and it will show you where your practice is leaking money.