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💰 '''Fee-for-service''' is a payment model in which providers are reimbursed for each individual service, procedure, or transaction they perform, and within the insurance industry it appears most prominently in [[Definition:Health insurance | health insurance]] benefit design and, separately, in the compensation structures used by [[Definition:Third-party administrator (TPA) | third-party administrators]], [[Definition:Claims adjuster | adjusters]], and service vendors. In the health insurance context, fee-for-service (FFS) plans allow [[Definition:Policyholder | policyholders]] to visit any provider without network restrictions, with the insurer paying a set amount per service rendered. Outside of health, the term describes arrangements where claims administrators, [[Definition:Independent adjuster | independent adjusters]], or [[Definition:Managed care organization | managed care]] vendors bill insurers on a per-claim or per-transaction basis rather than a flat retainer or capitated rate.

⚙️ Under a traditional FFS health plan, a patient receives care, the provider submits a [[Definition:Medical billing code | billing code]] to the insurer, and the insurer processes payment according to a fee schedule — often after deducting the member's [[Definition:Copayment | copayment]] or [[Definition:Coinsurance | coinsurance]] share. Because providers earn more by delivering more services, FFS has long been criticized for incentivizing volume over value, which is why [[Definition:Managed care | managed care]] models — including [[Definition:Health maintenance organization (HMO) | HMOs]] and [[Definition:Accountable care organization (ACO) | ACOs]] — emerged as alternatives that tie reimbursement to outcomes or capitated budgets. In property-casualty operations, a fee-for-service arrangement with a TPA might charge the carrier a fixed dollar amount per claim opened and a separate fee per adjuster hour, allowing precise cost tracking but requiring oversight to prevent unnecessary activity inflation.

📉 The broader insurance industry has been steadily moving away from pure fee-for-service arrangements in favor of performance-linked compensation. In health insurance, [[Definition:Value-based care | value-based care]] initiatives now tie a portion of provider reimbursement to quality metrics and patient outcomes, reducing the perverse incentive to over-treat. On the claims-services side, carriers increasingly negotiate outcome-based contracts where [[Definition:Third-party administrator (TPA) | TPAs]] share in savings when they close claims efficiently. Understanding the trade-offs of FFS — transparency and simplicity versus cost escalation risk — remains essential for anyone designing or managing insurance program economics.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Managed care]]
* [[Definition:Third-party administrator (TPA)]]
* [[Definition:Value-based care]]
* [[Definition:Capitation]]
* [[Definition:Health maintenance organization (HMO)]]
* [[Definition:Coinsurance]]
{{Div col end}}

Definition:Fee-for-service - Revision history

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