Academics and politicians are always on the prowl for new ways to build systems that can float above the rough and dirty realities of basic economics, and with a growing sense of crisis in healthcare, that area seems to have become a target:

Rhode Island has become one of six states approved to join a pilot program from the Centers for Medicare and Medicaid Services (CMS) that will seek to shift the Ocean State’s health delivery system from a fee-for-service model to value-based care.

Known as Achieving Health Care Efficiency Through Accountable Design (AHEAD), it promises to control health care spending, making it more affordable, and to promote and invest in primary care.

How? By offering hospitals a set amount of money per Medicaid and Medicare patient instead of having them bill for individual services.

An uncomfortable reality is that everything is “fee-for-service.”  Whatever feel-good tag you put on it (e.g., “value-based care”), people will not provide services unless doing so provides them value in return.  That value is usually income, but it can also be mixed with satisfaction or resolution of moral responsibility.  Paying at the level of the customer, rather than each service, simply means bundling the fees for services so that costly ones are subsidized by profitable ones.

Certainly, this is the central challenge of healthcare policy.  The stakes for customers seem low until they are suddenly very high, making us reluctant to pay until the situation is so desperate it requires measures for which we’re unable to pay.  To this, we must add, on one hand, the connection between people’s own behavior and the cost of their care and, on the other hand, a sense of moral obligation to help people, even when their conditions are of their own doing.

At the moment of crisis, it seems callous to point out the life decisions that likely brought things to a head, and to be sure, sometimes health crises just hit, with no known way to have avoided them.  Nonetheless, a well-designed system would maximize the incentive for individuals to care for their own health and to take inexpensive precautionary steps, with direct and visible connections between both behavior and services to both costs and outcomes.

The AHEAD program seems like it will further hide costs from the customer, and because it is taxpayer subsidized, the connection between the patient’s health-related behavior and the cost of his or her care is also hidden.  Without any of those things visible, recipients have high incentive to remain disabled and/or poor because both the health and economic conditions seem inevitable and the price of services seems mysterious and high.

Of course, the cost of services is not hidden from the professionals providing them, so a “whole patient” approach creates incentive to provide a barrage of free or low-cost services that might help and to avoid providing high-cost services.  This might lead providers to develop ways to change patients’ behavior or encourage them to do more screening, but the provider ultimately has no control over whether patients participate.

What’s more, in an environment of high demand and low supply, providers have no trouble finding new customers, so if there is no “fee for service,” the incentive is to provide as few services as possible and then help patients die as quickly as possible when they get sick.  If regulations require providers to check a certain number of boxes to prove they met their responsibilities, then those boxes simply become the definition of “as few services as possible.”

In healthcare, the mixture of incentives, responsibilities, causes, effects, health, and wealth is too mushy for academics and politicians to design a rules-based system.  Only a choice-based system will work, in which providers and patients decide what they value and make their choices accordingly.  Prices are the only way to score those choices.  Providers who produce better outcomes must be able to charge prices commensurate with that proven value (proven to the people willing to pay), and customers must be able to see and judge the cost of the services they require as well as the behavior in which they engage.  Different people will not only value different things, but they’ll be persuaded by different things, so the system must allow experimentation and differentiation.

Remaining to address are high-cost events and low-income patients.  For the first, we already have the mechanism of insurance — that is, true insurance for catastrophic circumstances, not complete health-management programs we call “insurance” — to subsidize relatively infrequent high-cost occurrences.  For the second, we need more-straightforward channels for compassion and communal responsibility that don’t eliminate the responsibility of individuals.  Tax-free health savings accounts would allow any individual or organization (employer, charity, or government) to provide individuals money that can only be used for approved health expenses, including routine care and insurance premiums.  Thus the individual retains both choice and responsibility.

The alternative is to continue devising top-down schemes attempting to treat the symptoms of a reality-denying system that produces worse and worse outcomes and higher and higher costs.

Featured image by Justin Katz using Dall-E and Photoshop AI.