Blockchain and Nash equilibrium in healthcare, oh my! [1]

By Ildar Fazulyanov, founder and CEO of WELL, Inc.

“There’s something profoundly broken in the world of insurance… Insurance makes money by denying claims. There’s a profound conflict of interest at the very core of the insurance business model… Trust in the insurance system is missing…which drives bad behavior.” - Dan Schreiber, CEO of Lemonade.

Game theory is one of the major reasons of blockchain success. Nick Szabo (BitGold) and Satoshi Nakamoto (BitCoin) used Hal Finney’s invention of Reusable Proof-of-Work (RPOW) to solve the Byzantine Generals Problem, a problem in ordinary computing that demonstrates through game theory how a group of potential co-operators can come to the best consensus even with the possibility of having malicious operators among them. This was the final piece to the BitGold/Bitcoin puzzle. WELL proposes use of blockchain to solve another nagging problem facing many industries.

Some industries, such as healthcare, have inherently broken dynamics of its participants choosing strategies that are not optimal, outcome known as prisoner’s dilemma. Prisoner’s dilemma in game theory is a situation in which two players each have two options whose outcome depends crucially on the simultaneous choice made by the other, often formulated in terms of two prisoners separately deciding whether to confess to a crime. We pose that blockchain can solve prisoner’s dilemma in healthcare and other similar industry environments.

Nash equilibrium (NE) is a solution for non-cooperative games in which each player is unable to improve on his current strategy, taking the other player’s strategy as given. That is, each player sees no benefit to changing his own strategy while the other player’s strategy remains unchanged.[2] The problem is that the incentives of the dilemma rule out an outcome that is superior for both players.

Healthcare provision today often involves a prisoner’s dilemma. Throughout the value chain every counterparty is better off not cooperating. One solution includes creating an integrated value chain (such as Kaiser), in essence merging counterparties and eliminating a need for cooperation. We will show that blockchain and its reputational motivation can change incentives to escape the prisoner’s dilemma without necessity for consolidation, expensive oversight and other complicated solutions.

Let’s take an example of Payor (Insurance Company) and Provider (Hospital, Doctor Office, Therapy Clinic, Home Healthcare Agency, Nursing Facility). If Payor chooses to pay for a claim, Provider is better off providing low quality service (or in some cases committing fraud). If Payor choses not to pay for a claim, Provider is still better off providing low quality of service . The same goes for a relationship between Provider and Clinician (doctor, physical therapist, nurse).

On the other side, whether provider chooses to provide high or low quality of service, Payor is always better off rejecting the claim.

Now let’s consider blockchain powered healthcare platform, where each player’s reputation is memorialized on immutable ledger, and both reputational and monetary punishment attach to non-payment and baseless rejection of payment for services and low quality of service. Such blockchain-enabled reputational effect converts what before was single stage game into repeated game. “In iterated prisoner’s dilemma games, it is found that the preferred strategy is not to play a Nash strategy of the stage game, but to cooperate and play a socially optimal strategy. An essential part of strategies in infinitely repeated game is punishing players who deviate from this cooperative strategy. The punishment may be playing a strategy which leads to reduced payoff to both players for the rest of the game (called a trigger strategy).”[3]

This is different than an internet-enabled centralized marketplaces, such as Zocdoc, Uber, AirBnB or Upwork where reputation is often not fully reflected in participant’s rating due to social dynamics. Blockchain reputation is driven by factual time stamped compliance and performance, is immutable, and completely data driven.

Finally, blockchain also solves non-payment and cancellation of payment problem by making a payment immediate and tied to smart contract-driven predetermined triggers.

Now whatever the strategy of the other player, each player is motivated to act in good faith by paying in full and on time for provided services and providing high quality service. In game theory, a state in which every participant can achieve the best outcome for herself only by acting according to her true preferences is known as incentive compatibility.[4] Thus blockchain breaks healthcare and many other industries out of prisoner’s dilemma!

Founder’s Story. Ildar started WELL after breaking his leg in a snowboarding accident. He had surgery, and after discharge, required physical therapy and rehabilitation, like many patients do. The process was very difficult and inefficient, and Ildar was unable to find a physical therapist for four weeks, and by the time of that first appointment, he had re-broken his leg again. The second break was the direct result of the extreme challenges in obtaining timely physical therapy care at home. This cost Humana $50,000 more in additional expenses for his second surgery. Had Humana had a better reputation of compensating home healthcare agencies for physical therapy visits it would have had a better network of PTs and it would have spent only $1,000 on Ildar’s home therapy, which it ended up spending anyhow.

About the author: Ildar Fazulyanov is a serial entrepreneur with over 20 years of experience in healthcare, fintech and venture capital. He founded Well, Inc. over two years ago with a mission to provide access to highest quality care to everyone. Ildar has managed all aspects of running a successful healthcare business, including accounting, business development, Medicare licensing, recruiting clinicians, sales, marketing and HIPPA compliance. Prior to WELL Ildar founded and completely bootstrapped Greener Equity, a successful fintech company, sold to Econ Partners. Ildar started his career at Bain & Company. He worked for DB Alex. Brown and was part of a launch of DB Advisors from an internal trading desk to multibillion dollar hedge fund. He also worked in Venture Capital at vSpring Capital ($450M AUM), now Signal Peak Ventures. Ildar graduated with MBA from Tuck School of Business at Dartmouth with Tuck Scholar Distinction and degree in Economics from BYU Magna Cum Laude.

About WELL: WELL is building the world’s first decentralized global marketplace for healthcare, using blockchain technology to eliminate borders and directly connect healthcare specialists and patients worldwide. By creating a token for on-demand healthcare that solves the current problems of cross-border payments, data accessibility, and payment risk, we allow regions with the highest quality of healthcare to serve the entire world.

[1] Reference to Dorothy exclaiming: “Lions and tigers and bears, oh my!” in L. Frank. Baum, The Wonderful Wizard of Oz. Baum wrote it in 1900 as a political allegory. For example, the Yellow Brick Road represents the gold standard, and the silver slippers (ruby in the 1939 film version to show up better on big screen) represent Silverite movement, advocating free coinage of silver coins. This contrast is similar to inflationary politics of most Central banks compared to deflationary nature of cryptocurrencies. Healthcare industry puts more inflationary pressure on world economy than any other industry, and WELL cryptocurrency aims to counter healthcare’s inflationary effects.

[2] https://en.wikipedia.org/wiki/Nash_equilibrium

[3] https://en.wikipedia.org/wiki/Repeated_game

[4] https://en.wikipedia.org/wiki/Incentive_compatibility