Feds try everything to fix health-care system — except what works

Recently, CMS introduced its latest payment reform proposal, titled the “Primary Care Initiative.” This is the latest in a long line of federal schemes to try to rein in the cost of medical care and introduce appropriate incentives.

Sadly, despite its many efforts, CMS and federal lawmakers have continued to miss the elephant in the room: Regardless of the model CMS imposes, whenever third parties manage transactions, as health insurance companies and governments currently do throughout our health-care system, many normal market forces are hopelessly distorted.  

{mosads}This is because third-party transactions can never replicate the normal free-market incentives that occur viscerally and free of charge when a patient controls the resources devoted to his or her own care.

Many of the principal problems with the current health-care system started in the 1960s, when health insurance and then government became the primary payers for medical services. After the advent of Medicare, there was a veritable price explosion, as providers took advantage of the blank check that had been written by CMS. Patients were no longer incentivized to pay close attention to the cost of care and in most cases, they stopped caring about health-care prices altogether.

In its attempt to curtail skyrocketing costs, CMS intervened and the blank check gave way to fixed prices for services. Prices are now dictated by pre-determined codes for each given service. Under this “fee-for-service” model, providers increase the number of services provided to capture as many of those third-party dollars as possible. Since quality is typically not a factor now, providers are incentivized to decrease quality in exchange for a higher number of services. At many doctor’s offices across the country, patients now feel like they are products on an assembly line, not flesh and blood human beings with diverse needs.

Over the past several decades, HMOs, PPOs, ACOs and the ACA — a veritable alphabet soup of payment reforms and models — have been imposed in an attempt to instill quasi-free-market incentives in our centrally-controlled health care system. These third-party systems were designed to control costs by restricting access and determining “quality” based on biometric algorithms. However, these “value-based” algorithms are easily gamed by providers to ensure that they receive the maximum payment for a service, regardless of whether they match patients’ expectations.

With each iteration of these schemes, proponents have claimed their “unique” edition is complex enough, savvy enough and incorruptible enough so as to replicate the complex interplay of incentives occurring in free markets — including interpersonal interactions, good will, subjective interpretation of quality, supply and demand, etc. But all centrally-controlled attempts to create the benefits of free-market systems lack the precision to do so and are often more akin to doing brain surgery with a sledgehammer.

If a centrally-controlled system were ever formulated that works as well as the free market, it would have to be so complex as to be able to determine the needs and justifiable payments for each individual at each moment in time and space. For example: Josh is different than Kimberly. Josh in Kansas in 2012 is different than Josh in Kansas in 2019. And Josh living in Kansas is different than Josh in Texas in any year.

If a centrally controlled system could be devised to account for this complexity, it would be so onerous that it would destroy the transaction it is trying to compute in the first place. Even more importantly, it would attempt to replicate, at great cost, a process that the free market produces innately and for free. Thus, the vision of a centrally-controlled system that works as efficiently as the free market can never truly be realized. The real solution to our health-care cost problems is to reject central planning and instead give the health-care purchasing power back to the people.

Perhaps CMS’s newest reform will be less disastrous than previous attempts, but we shouldn’t confuse “less disastrous” with “successful.”

Chad Savage, M.D. is a policy fellow at the Docs 4 Patient Care Foundation and the founder of the DPC practice YourChoice Direct Care in Brighton, Mich.