The proposed HMSA-Hawaii Pacific Health merger is advertised as a solution to rising healthcare cost by expanding “value-based” payment. This means up-front payment per-member or per-episode of care, and then holding doctors, or doctors and hospitals together, accountable for the cost and quality of care.

High cost is blamed on fee-for-service with its supposed incentive to maximize “volume” of care, whereas “value-based” payment supposedly rewards “value,” not “volume.”

But this is a false and dishonest rationale. We don’t have a problem with excessive “volume” of care; our problem is a severe shortage of doctors and inadequate access to care.

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Despite 15 years of trying by Medicare and also by HMSA, “value-based” payment has never delivered lower cost, and it introduces perverse incentives to avoid caring for sicker, higher risk patients, up-code to game risk adjustment, and skimp on care including necessary as well as unnecessary care. And it adds administrative costs that are far higher than payment with fee-for-service and outweigh any savings from reducing “volume” of care.

Hawaiʻi never had a problem with excessive “volume” of care when everyone was paid with fee-for-service. In 2009, prior to the Affordable Care Act and “value-based payment,” we had the lowest per-capita Medicare spending in the country, good physician participation in Medicaid, and universal participation in Medicare.

We had the third-lowest commercial premiums in the country while offering the best benefits and broadest coverage and lowest patient cost-sharing thanks to our Prepaid Healthcare Act. We had a doctor shortage, but it was much less severe than now, and we still had doctors entering primary care and finding it viable.

HMSA has aggressively implemented “value-based payment” with primary care capitation starting soon after passage of the Affordable Care Act in 2011. The result has been constrained physician payment, rising administrative burdens and costs, declining take-home pay below viability for the cost of living in Hawaiʻi (especially on the neighbor islands), and doubling of health insurance premiums.

This is a failed model, based on false premises.

Solving Hawaiʻi’s healthcare cost and access problems must start with questioning the assumption long held by the Legislature and successive administrations that HMSA has the answers.

Solutions will require asking and listening to doctors, not insurance companies, about what would make practicing in Hawaiʻi viable again. This must include some combination of reduced practice costs and administrative burdens and improved payment, especially for primary care and psychiatry where shortages are most severe.

The first priority should be reducing practice costs with a much simpler, more transparent payment system, going back to fee-for-service but improving it to ensure that payment covers time the doctor must spend on documentation, care coordination, and other non-face-to-face activities on behalf of a patient.

The doctor must also be able to choose the time needed for delivering optimal care to each patient without financial penalty for spending the time needed. Administrative savings from a simpler, standardized fee-for-service payment system could be in the range of 15% of total healthcare cost, including savings for both the payer and for doctors and hospitals.

Savings could then be used to ensure adequate pay to afford Hawaii’s high cost of living. Lower practice costs would free up take-home pay without drastically increasing fees.

If HMSA and Hawaii Pacific Health are allowed to proceed with a merger that doubles down on “value-based” payment, we won’t see lower cost, but we will see our doctor shortage become much worse, especially on the neighbor islands. The administrative costs and burdens of “value-based” payment are a major part of the reason primary care practice in Hawaiʻi is no longer viable.