HCI3 Update from the Field: Consider the Theories of Nobel Laureates

Submitted by francois.debrantes@hci3.org on Friday, June 22, 2012 - 12:46

Newtown, CT – June 22, 2012

Sometimes it's useful to consider the theories of Nobel Laureates – in his seminal work on Game Theory, John Nash exposes a situation in which an equilibrium can be reached where neither party can gain more than the other. The Nash Equilibrium should be what we strive for when considering the design of new payment programs, a situation in which neither the payer nor the provider of health care services can gain more by further "strategizing". In other words, shifting from the equilibrium would create harm to one or the other. If we consider the contract between a payer and providers a situation in which the benefit of one can be maximized at the cost of another, then seeking the Nash Equilibrium is important. One of the main reasons to shift away from fee-for-service is that it sets up the payment "game" as a net loss to the payer because there is no loss to the provider, only gain. As such, over time, Congress has seen fit to create restraints on the potential gains by instituting a variety of control mechanisms. One such set is the many regulations that prevent providers from amassing too much market share. Yet is it possible to restrain the inexorable forces of business and economics? Not really, but Congress oftentimes chooses to ignore reality. So here's one example of gaming creativity to circumvent the rules on referrals: a specialist practice in a high FFS field (therefore where the potential gain from producing more services is highest) "rents" space from a practice in a low FFS field. There's no official quid pro quo, and of course there's no real office space being rented, but suddenly the flow of referrals is going into a new direction. Guess where. In their efforts to pilot new payment models, the CMMI and many health plans should carefully consider these lessons.

What this means to you – while we applaud the move to a better equilibrium in gains and losses between payers and providers, we have to carefully consider that this shift will be carefully analyzed by those who are now going to be at financial risk. They should and will look at the elements in the new deal and ponder ways to tip the scales in their favor, being concerned that the deal offered might tip the scale too much in the payer's favor. To stop the games, we must move fast to the Equilibrium, and one way to ensure that is to reduce the potential for playing the probabilistic set of dice. The guidance offered by CMMI to applicants for the Bundled Payment for Care Improvement has, unfortunately, some gaming elements that can and should be reduced. For example, including outliers can lead to providers simply picking DRGs with lots of outliers in one year, betting that there will be fewer the next. Do we really want meaningful payment reform to focus provider attention on gaming options? Today we release our own guidance to BPCI Applicants and urge them to follow it as they submit their proposals. You can't eliminate all gaming, but we can get closer to the point where shifting strategies won't really net much of a benefit. Payment reform should be about minimizing wins and losses for both payers and providers, so that the patient benefits because everyone is focusing on them for the right reason – good care – instead of the wrong reason – playing the odds.


Francois de Brantes
Executive Director
Health Care Incentives Improvement Institute, Inc.
w: www.hci3.org