A Practice’s revenue is the lifeline which supports all the other services it provides. It is important for physicians, hospitals, and healthcare practices to have a reliable and solid source of revenue. If the processing time for claims slows down, it can make it difficult for a practice to manage expenses.

Two of the payment models, currently in use, by US physicians, are fee-for-service (FFS), and pay-for-performance (P4P). While the former has been around longer, the latter is a new concept aimed at reducing medical costs and improving the quality of care.

Let’s discuss both of the models in detail and see what the major differentiating factors are:

Fee-for-service (FFS)

In this model of service delivery, physicians charge separately for each of the services provided to any patient. Needless to say, physicians prefer this type of model, as they are able to maximize their revenues by charging for a host of services.

However, the quality of care has suffered in this model, since physicians tend to focus on providing as many services as they can, in order to receive more payments. Software payment gateway integration allows healthcare providers to process payments securely and efficiently, reducing administrative burdens and improving the patient experience.

The increase in medical costs has largely been attributed to this model of service delivery, and the government has made many efforts to abolish it. There are several regulatory changes currently being pursued, in order to phase this system out completely. Bundled payments and capitation are two such methods that discourage physicians from performing unnecessary tasks and surgical procedures, as physicians do not get paid extra for the additional procedures.

Having the physicians move away from this model and linking their payments to the provision of quality care, will certainly improve the standard of healthcare delivery and reduce healthcare costs.

Pay-for-performance (P4P)

In this service payment method, the payments to a physician are linked with the quality of healthcare being provided to the patients. It introduces quality and efficiency incentives and works on the model of coordinated care.

Since physicians get paid for quality, they focus on the patient instead of just providing unnecessary services. This payment method is also postulated by Accountable Care Organizations (ACOs), under the Patient Protection and Affordable Care Act or Obamacare. In this method, physicians are given a fixed population batch of 5,000 patients to be accountable for, and are rewarded for the quality of services provided. Healthcare providers in this model benefit from coordinated care of the model, and are able to keep their costs down by resource sharing in the network. Providers in the ACO model share profit from the cost saved.

The FFS model will be in use for some time in order to allow a complete transition to the P4P. While it may be a long way away, the pay-for-performance method will not only improve quality of healthcare delivery, but will also serve to reduce healthcare costs on the whole, something which has long been debated. Let’s hope this is a win-win situation for all the parties involved and we can see some reduction in costs.