Alternative Payer Models vs. Fee-for-Service

September 05, 2023

Healthcare reimbursement models have been adapting to meet updated regulations and evolving patient needs, especially as the industry shifts toward a value-based care framework. Reimbursement models fall into fee-for-service and alternative payment models (APMs). This article will compare the two and discuss what APMs can offer healthcare organizations seeking to excel in value-based care (VBC).   


Fee-for-service is the “traditional” and most commonly used payment model in healthcare. A healthcare provider is paid simply on a per-service basis — the more procedures performed, the more total reimbursement they will receive. 

Fee-for-service incentivizes healthcare providers to order more services, which reduces the chance that they will cut corners by not providing every service possible.   

But because the provider profits more from more treatments, fee-for-service lends itself to unnecessary services instead of quality preventative care, making it a quantity-over-quality model.    

This is not only inefficient but can hurt health care outcomes. Patients are becoming increasingly dissatisfied with this model, and the federal government and healthcare stakeholders realize how fee-for-service translates to bloated and wasteful spending on healthcare.   

The 2022 Health Statistics report, a compilation of healthcare system statistics from the Economic Co-operation and Development (OECD) that compares America’s healthcare system to other nations, reported that the U.S. spent an estimated $12,318 per person on healthcare in 2021. This was far above the average of $5,829 per person spent by comparably wealthy nations and showed no corresponding health outcome advantage. This demonstrates the inherent waste and flaws that may exist in fee-for-service.    

Alternative Payment Models (APMs)

As the name suggests, alternative payment models are far from the industry norm; nevertheless, they are steadily being adopted by more stakeholders across the healthcare sector. APMs were developed by the Centers for Medicare & Medicaid Services Innovation Center as fee-for-service alternatives that incentivize value-based care (VBC). VBC is an evidence-based, quality-over-quantity approach to healthcare that rewards health outcomes, preventative care, patient satisfaction, and efficient use of resources.    

APMs financially reward healthcare providers for demonstrating effective VBC according to specific quality measures. For example, an oncology clinic using the current Enhancing Oncology Model (EOM) may target the following metrics:   

  • Reduction in ED admissions
  • Reduction in patients receiving end-of-life chemotherapy   
  • Cost-effective choice of drugs   

Effective value-based care is made possible by specialized healthcare platforms that leverage AI, cloud computing, and data analytics to enable features like:   

How APMs Enable Value-based Care for Health Plans and Providers

Although APMs are primarily in their infancy, there is evidence that they are already succeeding.   

  • In 2020, a survey of existing APMs found that many achieved “statistically significant savings” for healthcare stakeholders while improving patient outcomes.
  • VBC payment incentives, such as the Innovation Center’s Independence at Home model, resulted in a 93% satisfaction rate among beneficiaries and caregivers.   

APMs involve the assumption of more financial risk and practice transformation, but their health outcomes and cost savings improvements are making inroads throughout the industry. In a recent survey, 99% of healthcare executives projected that some of their company’s revenue would be based on APMs by 2023.   

Making the most of APMS means investing in the right software tools. For optimal results, partner with a healthcare technology vendor with proven experience in your healthcare specialty.

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