What Switching to Value-Based Care from Fee-for-Service Reimbursement Means for Healthcare Providers

Healthcare debates often focus on who has insurance and how much coverage costs. The way providers are paid is a less visible issue, at least to the average American, but it shapes the entire landscape of a healthcare system, with ripple effects that reach back to the point of care. And, within the healthcare world, the debate between the two primary models of reimbursement—fee-for-service and value-based care—is a nuanced and important one.

For decades, most doctors and hospitals have been reimbursed under fee-for-service. In this model, every visit, test, and procedure generates revenue. Simply put, the more providers do, the more they get paid. But critics argue this drives up costs and can encourage unnecessary care, without always improving patient outcomes.

Value-based care offers a different approach. Instead of rewarding volume, it ties reimbursement to the quality of care and to patient health. The goal is to reduce waste, emphasize prevention, and improve outcomes while containing costs. Both Medicare and private insurers have begun adopting value-based models, and providers, along with healthcare administrators, have had to rethink how they deliver and measure care in order to adapt.

Value-based care implies the same question all meaningful healthcare reform does: how are you going to pay for it? And, as with other debates around healthcare reform, the answers to that question are many, but also complex. Many of the solutions to funding may already be in place; healthcare organizations need to pick the one that works best for them.

There are four main forms of supporting value-based care:

• Shared Savings. If providers keep overall spending below a set benchmark while meeting quality goals, the payer shares part of the savings with them.
• Shared Risk. Similar to shared savings, but with downside exposure: if spending exceeds benchmarks, providers must absorb part of the losses.
• Bundled Payments. A single payment covers all services related to a defined episode of care, such as a joint replacement and rehabilitation. This encourages coordination among providers and discourages unnecessary or duplicative services.
• Global Capitation. Providers receive a fixed per-member-per-month (PMPM) payment to cover a population’s healthcare needs. They assume financial risk if costs exceed the budget, but benefit if they can keep patients healthier at lower cost.

Several combinations of the above exist, as do less-common methods of cost management. Each system is tailored to the organization or organizations using it. As the body of observable evidence increases, more healthcare organizations may transition to value-based care from fee-for-service reimbursement plans. The associated benefits, as well as the challenges, are plentiful.

Healthcare emits and absorbs an outrageous amount of data and a long-running challenge has been in how an organization can record, access, and share that data effectively.

With a value-based care model, however, the issue gains an added level of complexity: now that the goal is care quality and patient outcomes, different data points need to be collected and solved for. What datapoint defines value, or quality? In a 2019 survey by Definitive Healthcare, approximately 15 percent of over 1,000 health leaders reported that access to patient information was one of the critical challenges providers faced when transitioning to value-based care.

To realign data to a value-based model may also require an overhaul of one’s software, which can be costly and time-consuming.

Even though multiple models exist for organizations to shift their financial model to a value-based care system, many healthcare organizations are turning themselves into prototypes when they make the transition.

Revenue streams can be unpredictable in the first early cycles of a switch to value-based care, and resources will often be stretched thin to cover for departments within a healthcare organization that can’t make the transition as easily as others.

A lack of resources was cited as the number one challenge for healthcare providers in transitioning to value-based care, according to survey results, with over a quarter of providers listing this as their most critical obstacle.

Value-based care is making inroads at a majority of healthcare organizations, but it’s often still competing with traditional fee-for-service models, which remain, for the moment, more profitable.

Within a single organization, both models may be in play across different departments. This creates disharmony in a facility’s overall operations and makes sharing with other organizations difficult as well. Survey results found that gaps in interoperability were the second biggest challenge for healthcare providers in transitioning to value-based care.

Unlike the fee-for-service model, value-based care naturally incentivizes providers to be more efficient and to lower unnecessary costs. With the emphasis shifted from symptom management to a more holistic system of patient care, providers are likely to invest in more effective and cheaper options such as telehealth and automated check-in procedures. While the start-up costs of these innovations may be significant, the long-term savings they provide will prove them to be sustainable. This is a win for providers as well as patients: what’s cheaper to one will be cheaper to the other, too.

The core tenet of value-based care is that it places emphasis on the quality of care, rather than the quantity of care provided. And an increase in the quality of care necessitates an increase in patient satisfaction—an important benchmark for healthcare providers and healthcare administrators.

A healthcare organization offering value-based care that comes with an increased rate of patient satisfaction is more likely to retain patients and their families and achieve higher scoring metrics than its competitors. Furthermore, a healthcare organization with streamlined processes and reduced waste is more likely to retain higher-quality talent.

While fee-for-service models often create a competitive relationship between different healthcare entities, such as payers and providers, value-based care aims to align their incentives under a common framework. Instead of each side bearing risk separately, value-based contracts shift some financial responsibility to providers, though the exact balance depends on the terms of the agreement. Bundled payments can also reduce administrative waste by consolidating claims into a single payment for an episode of care.

Even across multiple departments or facilities within an Accountable Care Organization (ACO), shared savings and shared risk arrangements encourage collaboration by tying payments to overall performance, creating more unified incentives for distributing resources and coordinating care.

When this article was first published in 2020, value-based care was already well established as a policy priority, though implementation was uneven. According to the Health Care Payment Learning & Action Network (LAN), nearly 60 percent of US healthcare payments in 2020 were tied to some form of value, but many of those contracts were limited in scope, and less than half involved providers taking on true financial risk (Health Affairs 2022). Roughly 40 percent of all payments still flowed through pure fee-for-service models. But that shouldn’t be viewed negatively.

“Fee-for-service is the right model for certain systems, certain settings, certain organizational structures,” says John Petrarca, PhD, a professor of healthcare administration at Purdue Global. “Applying a blanket idea of switching to value-based care would just be poor business in some cases.”

In the last five years, there has been a continued trend towards value-based care. More than 64 percent of Medicare Advantage payments flowed through value-based arrangements in 2023, compared to 58 percent in 2020 (AHIP 2024). Today, nearly 30 percent of all US healthcare payments involve downside risk, meaning providers can lose money if spending exceeds benchmarks (MedCity News 2025). CMS has set a goal that every Medicare beneficiary will be in some form of accountable care relationship by 2030 (CMS 2023).

“Capitation, shared risk, full risk, risk corridors, quality incentives—these things have been around for years and years,” Dr. Petrarca says. “But to get the buy-in from physicians…that’s where it’s been tricky.”

For smaller practices in particular, value-based care can be financially dangerous. Without a large enough patient base to spread out the risk, one or two sick patients—consider something like a serious cancer case—would be enough to blow up the entire model, financially.

That reality is reflected in recent surveys: according to the Medical Group Management Association, fewer than half of practice leaders today express optimism about their future in value-based care, underscoring a cautious or skeptical mood among smaller providers (MGMA 2025).

Even as more payments shift to value, many providers remain underprepared to manage the demands of these contracts. Data infrastructure remains a major barrier. In 2024, fewer than half of primary care physicians reported receiving any value-based payments at all, with many citing the lack of data infrastructure and staff capacity as key obstacles (Commonwealth Fund 2024). Advances in AI can help, but also come at a cost.

“With AI, there are more tools available now,” Dr. Petrarca says. “Practices that used to struggle with pulling the right data may find it easier. But it’s another learning curve, and not every group has the manpower to take it on.”

Policy remains the most consistent driver of the transition to value-based care or hybrid models that include value-based elements. But it’s less of a revolution and more of a slow negotiation. The numbers show steady growth for value-based models, especially in Medicare Advantage and accountable care, but fee-for-service persists, many providers remain either unprepared or uninterested in a change to value-based care—and the very definition of value remains contested.

The question at the heart of the debate is the same question that spawned it: how do we define and measure value in care, without either incentivizing waste or risking undertreatment?

“We’ve been talking about it and we’ve been doing it for decades, but it’s still not perfect,” Dr. Petrarca says. “It’s so complex. That’s the problem.”