U.S. Department of Health and Human Services
National Diabetes Education Program Logo

Contact Us

Health Information Center


Changing Landscape: From Fee-for-Service to Value-Based Reimbursement

In a fee-for-service (FFS) model, primary health care professionals get paid per person per visit. Patients may wait until they feel sick to come in, compromising prevention efforts, and providers may not know which patients are not showing up, compromising opportunities to screen individuals at risk for disease. Providers get paid in a FFS system for seeing patients regardless of clinical outcome, providing little differentiation between effective and ineffective encounters. The average primary health care professional sees about 1,750 patients per year, a number that has changed little since 1946.1 Proactively providing a rapidly increasing number of preventive services to a patient population demands the delivery of ‘non-visit’ care that takes place outside of the office setting. Providing that care requires that a practice knows exactly who is receiving diabetes care.

Responding to these challenges, primary care reimbursement models are nationally shifting from strict FFS models toward value-based reimbursement systems. Value-based systems incorporate clinical outcomes in provider reimbursement, and generally provide differential payments based on measures of clinical quality and cost. Reimbursement can be associated with meeting specific performance criteria, or negotiated through ‘shared risk’ contracts in which the cost of a patient illness is shared by the provider as well as the payer. Some systems grade reimbursement along the continuum of the patient’s journey with their disease, reimbursing more highly for care of complex disease. In a primary care practice, the term Population Health Management describes the overall approach of providing care delivery that aims to improve the health of everyone in a clinical practice, even if they haven’t been in to the practice for up to two years. Under these models, successful practices know who their patients are, and regularly review their medical records to ensure that they receive the care they need.

Within the FFS model are new codes that practices can use for reimbursement for the coordination of care at transitions from inpatient to outpatient setting (Transition of Care codes PDF, 1.1 MB) as well as for chronic care coordination (Chronic Disease Management codes PDF, 831 KB). CMS has pilot programs underway that provide additional monthly capitation dollars for comprehensive diabetes care. While these are examples of evolving fee-for-service approaches, more substantial changes include the creation of Accountable Care Organizations (ACOs) that merge costs from across multidisciplinary groups. ACOs often contain hospitals, primary care providers and specialists, and are incentivized to achieve high quality while reducing the combined cost of care by sharing attributed savings between the ACO members and the Medicare Shared Savings Program. The Medicare Bundled Payment Program also allows health care systems to share savings from cost reductions for pre-specified patient groups for 90 days following admission to acute care facilities.

In a more dramatic modification of payment methodology, the Medicare Access and CHIP Reauthorization Act of 20152 repealed the yearly increase to physicians' reimbursement (known as the sustainable growth rate) with two value-based payment tracts for physicians – both of which incentivize for increasing quality and lowering costs with the percentages of total pay based on merit (cost, quality and EHR use) exceeding 50% in the coming years.

In order to meet the demands of these payment reforms, practices must redesign the delivery of services to a team-based system that provides proactive care to prepared patients. Care must evolve to enable increasing coordination between practitioners within the health care system and connect patients to community-based resources and supports. Providers will need to maintain increased vigilance and communication with patients even when they are not physically in the office. Increasing care coordination will force providers to adopt new technologies for communication and monitoring. The concept of a longitudinal relationship between a patient and provider over time that addresses the patient’s individual needs and coordinates care across the continuum of a multidisciplinary team is an important foundation for successful population management.

The Patient Centered Medical Home

One of the most widely adopted and most promising models of health care delivery system reform is the patient centered medical home (PCMH). In 2014, the PCMH had more than 114 existing payment incentives and demonstration programs that included 21 million patients in 44 states.3 The most common focus of improvement for a PCMH nationally was on improving the delivery of diabetes care.4

The core elements of the modern medical home evolved from the 1978 World Health Organization declaration, which identified the central role of primary care as providing first contact, continuity, comprehensiveness, and coordination of care.5 These broad concepts were expressed with the passage of 1979 Child Health Plan legislation in Hawaii and adopted by the American Academy of Pediatrics (AAP).6,7 Core concepts of the PCMH were subsequently published by the American Academy of Family Physicians (AAFP) and the American College of Physicians (ACP) describing central elements and expected services, noting that “system wide changes will be needed to ensure high-quality health care” and recommending “that every American has a personal medical home, promoting the use and reporting of quality measures to improve performance and service.”8 In February 2007, the AAFP, AAP, ACP, and the American Osteopathic Association together published the Joint Principles defining the central concepts of the PCMH used today.9 The PCMH model continues to gain support from industry, advocacy groups, government, and across the health care industry. More recently, Section 2703 of the Affordable Care Act (ACA) provided for the care of chronically ill patients though Health Homes.

The importance of team-based care and coordination has long been recognized as an essential component of high-quality diabetes care.10 The PCMH principles include many similarities to the services developed during the Diabetes Control and Complications Trial for improving diabetes care through the development of multidisciplinary teams.11 Within a PCMH, each patient has a personal physician who leads a team providing comprehensive care; care is coordinated across the complex health system; quality and safety are ensured; and payment provides recognition of the value of the care coordination.

Although empirical data and experience suggest that the PCMH model has promise to improve quality and lower cost, the impact on diabetes care remains unclear. The principles of the PCMH model are well established.9 However, the way individual practices operationalize PCMH principles has varied, which has contributed to inconsistent results. It is not clear which organizational domains of change drive practice improvement and which services or resources are most likely to improve clinical outcomes.12,13 Demonstration projects and clinical trials are ongoing and a better understanding will be important for guiding incremental change.3

For more information about PCMHs, see PCMH Definition and Measurement.


1. Murray, M., & Davies, M. (2007). Panel Size How Many Doctors Can One Patient Manage? Family Practice Management, 14(4), 44–51.
2. Medicare Access and CHIP Reauthorization Act of 2015, 114-10, 114th Cong. (2015-2016).
3. Nielson M, Olayiwola JN, Grundy P, Grumbach P. The Patient-Centered Medical Home's Impact on Cost & Quality: An Annual Update of the Evidence, 2012-2013. 2014. Available from: https://www.pcpcc.org/resource/medical-homes-impact-cost-quality
4. Bitton A, Martin C, Landon BE. A nationwide survey of patient centered medical home demonstration projects. J Gen Intern Med. 2010;25(6):584-92.
5. Berenson RA, Hammons T, Gans DN, et al. A house is not a home: keeping patients at the center of practice redesign. Health Aff (Millwood). 2008;27(5):1219-30.
6. Sia C, Tonniges TF, Osterhus E, Taba S. History of the medical home concept. Pediatrics. 2004;113(5 Suppl):1473-8.
7. Medical Home Initiatives for Children With Special Needs Project Advisory Committee. American Academy of P. The medical home. Pediatrics. 2002;110(1 Pt 1):184-6. Epub 2002/07/03. PubMed PMID: 12093969.
8. Martin JC, Avant RF, Bowman MA, et al. The Future of Family Medicine: a collaborative project of the family medicine community. Ann Fam Med. 2004;2 Suppl 1:S3-32.
9. American Academy of Family Physicians, American Academy of Pediatrics, American College of Physicians, American Osteopathic Association. Joint principles of the Patient-Centered Medical Home [Guideline]. 2007 [updated 7/26/20129/30/2015]. 2007/02/21: Available from: http://www.aafp.org/dam/AAFP/documents/practice_management/pcmh/initiatives/PCMHJoint.pdf (PDF, 270 KB).
10. Etzwiler DD. Chronic Care: A Need in Search of a System. Diabetes Education. 1997 Jan 1;23(5):569–73. Available from: http://tde.sagepub.com/cgi/doi/10.1177/014572179702300509
11. The effect of intensive treatment of diabetes on the development and progression of long-term complications in insulin-dependent diabetes mellitus. The Diabetes Control and Complications Trial Research Group. N Engl J Med. 1993;329(14):977-86.
12. Rosenthal TC. The medical home: growing evidence to support a new approach to primary care. J Am Board Fam Med. 2008;21(5):427-40.
13. Paulus RA, Davis K, Steele GD. Continuous innovation in health care: implications of the Geisinger experience. Health Aff (Millwood). 2008;27(5):1235-45.

Contact Us

Health Information Center