Negotiating with Insurers
Game Theory
and the
The Philosophy of Purchasers
and Suppliers
Accepting or Declining Discounts
with Insurers
• Consider the following scenario where
2 consultants each undertake 50 cases
per annum
• The total market for insured cases is
100 cases
The Start
• Consultant A
• Consultant B
• Cases p.a. 50
• Cases p.a. 50
• Fee per case £1000
• Fee per case £1000
• Income £50,000
• Income £50,000
Insurer offers more cases to Consultant
A if they reduce fees by 10%; the total
market is the same at 100 cases
• Consultant A
• Consultant B
• Cases p.a. 56
• Cases p.a. 44
• Fee per case £900
• Fee per case £1000
• Income £50,400
• Income £44,000
This means that in Year 1
• Consultant A has to do 12% more work
and must treat 6 more cases to
maintain the same income
• If the insurer fails to actually send the 6
extra cases Consultant A will see his
income drop
• In this deal consultant A bears all the
risk
In the next year let us assume that
• The market has not grown (and there is
no evidence to suggest that these fee
reductions will be passed on in lower
premiums and more subscribers)
• The insurer has in fact now managed to
redirected 20 cases from consultant B
to consultant A
The new situation with a total market
the same at 100 cases is
• Consultant A
• Consultant B
• Cases p.a. 70
• Cases p.a. 30
• Fee per case £900
• Fee per case £1000
• Income £63,000
• Income £30,000
Consultant B is now panicking so
• The insurer offers to include consultant B in
the managed care scheme if he lowers his
fees by 10%
• The insurer then stops redirecting patients
and restores the equilibrium
The new situation in Year 3 with a
total market the same at 100 cases is
• Consultant A
• Consultant B
• Cases p.a. 50
• Cases p.a. 50
• Fee per case £900
• Fee per case £900
• Income £45,000
• Income £45,000
Thus the situation in Year 3 is
• Both consultants are back treating the
same volume of cases
• Both consultants are earning 10% less
than at the start
Now the insurer returns to Consultant A
requesting a 10% fee cut for more work
• Consultant A
• Consultant B
• Cases p.a. 56
• Cases p.a. 44
• Fee per case £810
• Fee per case £900
• Income £45,360
• Income £39,600
The process restarts and is
always a downward pressure
• Consultant A has to undertake 12%
more work and treat 6 more cases to
maintain about the same lowered
income as the previous year
• Total income is down for both
consultants
• The redirection and ongoing downward
spiral continues……………..
The end result of the discounted
and agreed fees
• The patient is excluded from the
equation and the consultant/patient
contract has been broken
• This is now being applied on a grand
scale by certain major insurers
• It is a step wise reduction in income for
ALL consultants
• No overall growth in insured referrals
This is the end result of
discounted and agreed fees
Most importantly this means
Restriction of Patient
Choice