The cobra effect of volume-based incentives in health care: Why moving toward value-based care matters for population health

Healthcare payment systems routinely shape organizational behavior in ways their designers do not intend. One example is the “Cobra Effect” where incentives aimed at improving performance end up rewarding proxy activities rather than meaningful outcomes. Fee-for-service payment, which compensates activity rather than health improvement, has followed this pattern across diverse health systems. Although originally intended to preserve access and fairly reward professional effort, it has tended over time to encourage overuse, fragmented care, and underinvestment in prevention. Drawing on international experience from activity-based hospital payments in the United Kingdom to fee-for-service systems in the United States and Japan we argue that value-based care is a necessary paradigm shift to achieve better population health outcomes. We highlight design principles from initiatives such as bundled payments in Sweden, shared savings in U.S. Medicare, and Singapore's Healthier SG program, emphasizing balanced measurement, credible risk adjustment, safeguards for access, and meaningful patient involvement. When incentives are anchored to outcomes that matter to patients and populations, payment systems can shift from distorting care to supporting it.