American medicine has long been characterized by fee-for-service (FFS) payment. The FFS system has several merits. It rewards hard work and productivity and incentivizes physicians not to stint on care. It avoids placing physicians at financial risk if they care for sick patients and facilitates financing systems that allow patients unconstrained choice of provider (eg, physicians, allied health professionals, and hospitals).
Yet the FFS system has come under attack lately as a primary contributor to the ills of the American health care system. A drawback of the FFS system's incentive not to stint on care is an incentive to overuse care. While physicians are unlikely to intentionally provide care that is unneeded or even harmful, payment rates in most existing FFS systems are high enough to remove the incentives to eliminate such care. Moreover, FFS systems can facilitate growth of a fragmented delivery system with a lack of coordination and accountability. Additionally, FFS systems may discourage efficiencies in care provision because in most existing FFS systems, certain activities, such as e-mail contacts with providers, are not reimbursed.