Fee-for-service

Fee-for-service (FFS) is a payment model where services are unbundled and paid for separately. In health care, it gives an incentive for physicians to provide more treatments because payment is dependent on the quantity of care, rather than quality of care. Similarly, when patients are shielded from paying (cost-sharing) by health insurance coverage, they are incentivized to welcome any medical service that might do some good. FFS is the dominant physician payment method in the United States, and it raises costs, discourages the efficiencies of integrated care, and a variety of reform efforts have been attempted, recommended, or initiated to reduce its influence (such as moving towards bundled payments and capitation). In capitation, physicians are discouraged from performing procedures, including necessary ones, because they are not paid anything extra for performing them. In the Japanese health care system, FFS is mixed with a nationwide price setting mechanism (all-payer rate setting) to control costs.

In the health insurance and the health care industries, FFS occurs if doctors and other health care providers receive a fee for each service such as an office visit, test, procedure, or other health care service. Payments are issued only after the services are provided. FFS is inflationary by raising health care costs.

It creates a potential financial conflict of interest with patients, as it incentivizes overutilization,—treatments with an inappropriately excessive volume or cost.

It does not incentivize physicians to withhold services. If bills are paid under FFS by a third party, patients (along with doctors) have no incentive to consider the cost of treatment. Patients can welcome services under third-party payers because "when people are insulated from the cost of a desirable product or service, they use more."

Evidence suggests primary care physicians paid under a FFS model tend to treat patients with more procedures than those paid under capitation or a salary. FFS incentivizes primary care physicians to invest in radiology clinics and perform physician self-referral to generate income.

...
Wikipedia