Can a $3 Million Prize Solve a $2.5 Billion Dollar Problem?

April 21, 2011
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If a health plan could predict which patients will incur the most costs, theoretically it could focus on those patients without wasting resources on its healthy enrollees. According to an article in Slate:

If a health plan could predict which patients will incur the most costs, theoretically it could focus on those patients without wasting resources on its healthy enrollees. According to an article in Slate:

Dr. Richard Merkin, the president and CEO of the Heritage Provider Network (HPN) in California … has put a precise value on solving this problem: $3 million. That’s what Heritage is offering to anyone who can build the algorithm that best predicts which patients will be hospitalized and for how many days over the course of a year, based on a given data set. Merkin hopes the award, called the Heritage Health Prize and kicked off today, will help make Americans more healthy and the American health care system more efficient.

The alternative is to hire a consulting firm to develop a mathematical model which may be expensive and perform rather poorly. But with a prize, rather than just one team of consultants, numerous teams from different disciplines will all simultaneously work on the project. History shows winning teams collectively tend to spend 60 percent more than the value of the prize on the solution. This is not just a theoretical exercise. The teams developing the algorithm will have access to several years worth of HPN’s claims data.