Massive Losses in US Healthcare Industry Due To Fee For Service Payment Systems

Posted by Dike Drummond MD

massive-healthcare-industry-financial-losses-due-to-us-fee-for-service-for-profit-payment-mechanisms-OPT150WFee For Service Payment Dark Side = Massive Healthcare Industry Financial Losses in the COVID-19 Pandemic

The Perfect Storm - is this the Beginning of the End of Fee-For-Service Medicine in the USA?

There are MASSIVE LOSSES across the board for every healthcare delivery organization I am talking with - for weeks now.

The Mayo Clinic announcement of a projected $3 Billion 2020 loss was the first specific warning from an otherwise stable provider organization.

$100M in bailout payments to Baylor Scott and White and other Texas hospital systems is just the next in a long line of bad news for healthcare over the next 18 months.

Will this catastrophe force significant changes in the way healthcare is paid for in the USA?

  • The Old Normal is clearly gone, toast, history and kaput.
  • The New Normal is well off into the future and only after Darwin has done his nasty thing on the US healthcare industry.
  • Are fee-for-service and for profit motivations actually on the way out?

How did it all come to this?

The Two Faces of Pandemic Workforce Demand

The on-the-ground reality across the board - despite the desperate headlines online and on TV - is that only 20 - 40% of the healthcare workforce is actually busy at the moment.

All the front line providers dealing with sick COVID-19 patients are busy to the point of overwhelm.

Everyone else is idling, furloughed, reassigned or shut down.

  • All elective cases canceled
  • ER volumes actually at 50% of average in most locations outside the crisis zones
  • No one is getting screening colonoscopies or other routine visits

In a Fee For Service payment environment - the USA - this is a financial DISASTER.

Fee for service is lovely when you can spin that gerbil wheel and print money. Elective Cases are the Profit Margin in a Fee For Service Environment. Bye-bye corporate profits, now that we are in a pandemic.

massive-healthcare-industry-financial-losses-full-risk-capitation-better-fee-for-service-for-profit-tragedyOPT340WWHAT IF ... You Were Capitated/Full Risk Instead??

In a US system like Kaiser/Permanente or in a national health service like the NHS in England where primary care practices are capitated for their patient panels? 

Your reality would be radically different:

  • Your income would be constant.
  • This month's paycheck would be the same as last month.
  • There would be no penalty for less services rendered.
  • In fact, your organization will keep more money because the cost of services rendered dropped ... boosting your profits.


When the absolute carnage in the US healthcare system is complete and the dust has settled ...

Will the surviving US care delivery organizations in the New Post-COVID-19 Normal demand a Full Risk/Capitated Payment System -- specifically to avoid this kind of perfect storm in the future?

Is this the catalyst for large scale reforms like Full Risk, Single Payor, Universal Healthcare? 

Will provider organizations demand capitation and full risk going forward because fee-for-service is just too risky?

Stay tuned.

The US Healthcare Industry is ripe for disruptive change in a way that would have been unthinkable even in January 2020. I believe this will dramatically accelerate the adoption of full risk for the groups who have been developing population health for years now.

This new focus on population health for capitated pay would be a significant move towards true Health Care and it is about time.




How is your organization performing financially these days?
Have you been laid off, reassigned or your pay cut ... yet?
What do you think this means for the US healthcare industry of 2023?

Tags: Pandemic