Avoiding Fee-For-Service Isn’t so Simple

Even though they may be accustomed to shaking up how we think of the delivery of healthcare, there’s a reason why many digital health startups still use the traditional “fee-for-service” model.

Marie Thibault

November 3, 2015

5 Min Read
Avoiding Fee-For-Service Isn’t so Simple

Even though they may be accustomed to shaking up how we think of the delivery of healthcare, there’s a reason why many digital health startups still use the traditional “fee-for-service” model.

Marie Thibault

The maturation of the digital health trend has been one of the major themes of 2015, with more startups with novel ideas about how to deliver healthcare emerging this year.

It’s not just the new digital technology aspect that is important, however. As Dr. Lucian Iancovici, investment manager of the Qualcomm Life Fund at Qualcomm Ventures, pointed out at the FT Digital Health Summit USA on October 28, “Digital health is not a technology problem, for the most part. It’s a business model problem. It’s finding, either work within the healthcare system or the right consumer model that actually works, and I think that’s where innovation is happening . . . ”

Though there are some buzzy young companies using new business models, there are many successful startups that are using what might be considered the “old” business model of fee-for-service.

Speaking in another session at the FT Digital Health Summit USA, Samir Malik, cofounder and CEO of 1DocWay, explained that his company uses the traditional fee-for-service reimbursement model. 1DocWay is a service delivery company, Malik said, finding psychiatrists and matching them with underserved patients for telepsychiatry. The company has facilitated the treatment of 25,000 patients in 12 states, he said. 

"We built the business model thinking about where can we get paid for? Certainly, there’s the outside-in approach, let’s do what we think is going to be most impactful and then figure out how to bring reimbursement to us. We’re the other way around. Look at the reimbursement framework, work hard to understand what can be reimbursed, and then within that operating paradigm, try and deliver the care that’s going to be most effective. In our case, bringing mental health care to the most underserved populations,” Malik said.

[Hear more about novel service models at MD&M West in Anaheim, CA on February 9 in a session titled "The New Healthcare Launch: Service Models in Action"]

Malik pointed out that his company and many other digital health startups are still using traditional fee-for-service because it enables them to generate revenue and allows patients to use their technology.

Fellow panelist Dr. Reena Pande, chief medical officer and acting CEO of AbilTo, a telebehavioral health company for high-risk medical patient populations, noted that AbilTo also uses a fee-for-service model. “We have tried to make it simple, not only for our patients, but simple for our partners in terms of payment . . . In the present environment it seems to be the simplest way for health plans and other payers to still engage and pay for services like ours,” Pande said.

Malik said, “There’s something inherent to being a young company, which is you have to create proof points. Oftentimes the requirement for a proof point is showing revenue. So it’s not necessarily that these young companies like ours are trying to drive only a fee-for-service environment like physician services of yester-decade. Instead, it’s what do we need to do to create the proof point that this is a usable model? If we worked in care settings—and we actually did this, three years ago in our original business model—where we weren’t reimbursed, we weren’t getting patients to use our service, right? So we needed to chase down reimbursement just in order to create proof points—patients using the platform, us collecting data from patients to reform our business model.”

Still, both Malik and Pande agree that eventually more of healthcare will move away from the utilization standard toward value-based care—and they intend to make that move too. Pande explained, “I do think we are moving—we are and the world is moving—towards more value, quality-based care delivery models and so as the world shifts we will shift with it. Right now I think fee-for-service still is the lion’s share of the way Internet healthcare services are paid for . . .”

Malik echoed that sentiment. “The trajectory of healthcare is going to push everybody to value-based arrangements. Right now it’s a matter of survival and establishing proof points so that we can get ourselves to a capitalized position to make that shift to value.”

Of course, as Halle Tecco, founder and managing director at Rock Health, pointed out, digital health technologies do offer a cheaper form of service. “Another reason I think this model [fee-for-service] has been an easy one to start with is it’s replacing a much more expensive model. So it might still be fee-for-service, but seeing a doctor through video versus going into a doctor’s office or an emergency room when you have a sore throat, is a lot more cost effective,” Tecco said.

Pande and Malik both admitted that using the traditional business model means they must prove that their companies deliver good quality care and save payers money. Pande said, “I think the burden is on us to prove that utilization drives good quality and a good ROI. And then fee-for-service works, because we’re being held to proof that by using more good quality care, you can actually save money on the back end. So I think the burden is on folks like us to actually prove that utilization drives good outcomes, and good outcomes drive cost savings in the healthcare system.”

Marie Thibault is the associate editor at MD+DI. Reach her at [email protected] and on Twitter @medtechmarie


About the Author(s)

Marie Thibault

Marie Thibault is the managing editor for Medical Device and Diagnostic Industry and Qmed. Reach her at [email protected] and on Twitter @MedTechMarie.

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