3 Doctors, 1 Headache

Doron Samuell, 15/9/16

A few months ago, the NSW worker’s compensation scheme, adopted a failed policy from other jurisdictions, in the hope of engendering trust in claimants. The reasoning went along these lines: workers complain that they are being sent to ‘insurance doctors’ who are biased. This perception of bias makes the workers hostile and may contribute to adverse outcomes. The remedy? Give the claimants control over which doctor can examine them for the insurer.

There was precedent, but no evidence put forward beyond intuition, that this new approach would work. Unsurprisingly, this approach has the full support of unions and plaintiff law firms.

After several months of application, the anecdotal evidence from the scheme third party administrators, is uniformly negative. For every potential booking, 3 doctors are tentatively booked, 2 are cancelled. This has increased the workload for claims managers and irritated doctors whose diaries are in a constant state of flux. After speaking to one of my 400 panel doctors, a distinguished orthopaedic surgeon, about his experiences, a grim reality became obvious. This would not end well. I was reminded of Akerlof’s seminal paper on adverse selection in which buyers and sellers of cars were only trading ‘lemons’.

We could map out the 3 doctor dynamic of insurer, claimant and doctor, as a game where each was trying to maximise their positions. If they are rational, and in possession of perfect knowledge, the insurer would choose the doctor that provided the most reliable medical evidence (as this maximises their position), the claimant, or their proxy, would choose the doctor who was most likely give the greatest support to their claim and the doctor would be trying to maximise her income within the limitations of expertise and professional ethics.

Although there may not be perfect information about the medical providers to either the claimant or the insurer, it is undeniable that for many providers there are reputations that guide the choices of the parties. Information sources are available from the treating doctors, the internet, unions, lawyers and others.

At the appropriate time, Insurer X will offer doctors A, B or C to the claimant for a medical examination. Unless apathetic or naieve, the claimant will adopt a strategy to try to maximise her outcome by excluding the doctors considered least favourable. The claimant advises the insurer that doctor A is acceptable to undertake the examination. Doctors B and C do not get the appointment.

This will happen many times over, and doctor A will increase her income and doctors B and C will notice a diary filled with bookings and cancellations. All other things being equal, doctors B and C will experience a drop in income. Unless apathetic, they will become disinclined to accept future appointments and seek work elsewhere.

The insurer will still be required to provide 3 doctors. Since doctor A was acceptable to both parties, doctor A remains available, but new doctors, D and E must now be offered.

In the next stage of the game, claimants learn that doctor D is now more likely to generate favourable outcomes. Doctors A and E are now rejected consistently in favour of doctor D. Eventually doctors A and E will soon become unavailable for bookings, as did their predecessors.

The doctors do have the option of shifting their examination evaluations to being more appealing to claimants to avoid rejection; however claimants have no way of knowing how to discount the weight of the doctor’s previous reputation and the doctors behaving in this way invite legitimate integrity concerns. In this game, the doctors may be motivated to change their strategy, but will have limited success in doing so.

By now you can see where this is heading. The pool of medical providers in any specialty is limited. The rules of the game mean that insurer will still have to provide 3 doctors. At a critical point in the game, insurers will be offering doctors that do not meet their requirements, in order to stay in the game.

In this game, a Nash equilibrium is reached when the claimants are only choosing from a pool of Doctors that are considered to be maximally favourable. At this point, the requirements of the insurer are irrelevant to the equilibrium as they have been out-played. Only doctors considered highly favourable to claimants or apathetic doctors will remain available. Doctors who support claims in every instance, to the greatest possible extent, will ultimately be the dominant examiner. Insurers will be left with medical information that supports claims in all instances. Eventually, the approach will be seen as expensive and valueless and no one gets examined. At the endpoint in the game, the rules of the game have ensured that only doctors perceived to have strong biases towards claimants will be available to insurers for examinations.

The model predicts that the market eventually collapses at the equilibrium, as the insurer has no way of reliably performing medical due-diligence on claims. There is no instance in which a technically valid claim can be disputed based on the medical evidence.

It is axiomatic that insurers must have the opportunity to obtain their own evidence, this is fundamental to managing any claim. Claimants submit medical evidence from their treating doctor or commissioned medical reports. To defer to an approach, dictated by the politics of pleasing, will necessarily impact on the quality and reliability of the medical evidence that is available to the insurer. Poor decision making, that is predicated on the medical evidence, to accept a claim that has no merit, will only drive up costs and therefore premiums. When the premiums become unaffordable, will there be time to reflect on the pathway to collapse?