A Private Fee-for-Service (PFFS) plan is a type of Medicare Advantage plan (Medicare Part C) offered by a private insurance company contracted with the federal government. These plans deliver all the benefits of Original Medicare (Parts A and B), often with additional coverage for vision, dental, or prescription drugs. PFFS plans are sometimes misunderstood because their structure differs significantly from the more common Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) models.
Defining Private Fee-for-Service Plans
A Private Fee-for-Service plan is named for the way providers are paid for services rendered. The plan is administered by a private, state-licensed insurance entity that maintains a yearly contract with the Centers for Medicare & Medicaid Services (CMS). This arrangement means the private insurer takes on the financial risk of providing Medicare benefits to its members.
The core principle of a PFFS plan is the “Fee-for-Service” payment mechanism. This means the plan pays providers a specific, predetermined amount for each individual medical service a patient receives, such as an office visit or a lab test. The plan determines how much it will pay the provider and how much the patient will pay in copayments or coinsurance. Unlike some other models, the PFFS plan does not place the provider at financial risk based on the total cost of care for a patient population.
This payment structure is distinct because the insurer sets the rates for covered services, which may be different from the rates paid by Original Medicare. The plan is required to cover all the benefits provided by Original Medicare, but it can also offer supplemental benefits. The amount a provider receives is fixed per service, rather than a capitated rate where a provider is paid a fixed amount per patient per month, regardless of the number of services used.
How PFFS Plans Work
The practical use of a PFFS plan centers on provider acceptance of the plan’s payment terms. While a PFFS plan allows members to see any Medicare-approved provider, that provider must agree to accept the plan’s specific terms and conditions of payment. This agreement is often required for each individual visit or service, making the patient responsible for confirming acceptance before receiving non-emergency care.
The plan issues an identification card that must be presented to the provider at the time of service, replacing the Original Medicare card. The provider then reviews the PFFS plan’s payment terms, which outline the reimbursement rate for the service being provided. If the provider agrees to the rate, the service is covered, and the provider is paid according to the plan’s terms.
If the provider does not agree to the PFFS plan’s payment terms, the patient may be responsible for the entire cost of the service, except in emergency situations. Some PFFS plans have established partial networks of providers who have agreed to always accept the plan’s terms, which can simplify the process for members using those specific providers. However, for out-of-network providers, the agreement remains a case-by-case transaction.
Key Operational Differences from Managed Care Plans
PFFS plans operate differently from the common managed care models, specifically HMOs and PPOs, by granting members greater flexibility in provider choice. PFFS plans generally do not require members to choose a primary care physician (PCP), a feature that contrasts sharply with most HMO plans.
The requirement for referrals is another major distinction, as PFFS plans typically do not require a referral to see a specialist. The PFFS model removes this administrative step, allowing members to seek specialized care directly, provided the specialist accepts the plan’s terms. In an HMO, a member must usually obtain a referral from their PCP before seeing a specialist, or the service will not be covered.
The most significant difference lies in the concept of a provider network versus provider acceptance. HMOs and PPOs rely on a defined network of providers who have signed long-term contracts with the plan. Conversely, PFFS plans traditionally did not require a network, instead relying on the provider agreeing to the plan’s payment terms at the time of service. Even PFFS plans that have established a network must still permit members to see out-of-network providers who agree to the payment terms.
Enrollment and Eligibility
To enroll in a Private Fee-for-Service plan, an individual must be eligible for Medicare and enrolled in both Medicare Part A (Hospital Insurance) and Part B (Medical Insurance). The individual must also live within the PFFS plan’s designated service area.
Enrollment is generally conducted during standard Medicare enrollment periods. The Annual Enrollment Period (AEP), which runs from October 15th to December 7th, is the primary time when beneficiaries can join, switch, or drop a PFFS plan. Coverage selected during the AEP begins on January 1st of the following year.
Individuals newly eligible for Medicare can enroll during their Initial Enrollment Period (IEP). Certain life events, such as moving out of a plan’s service area, may qualify an individual for a Special Enrollment Period (SEP). Beneficiaries must enroll directly with the private insurance company offering the PFFS plan.