Heritage Health Using Prizes to Cut Costs

I believe that in spite of imperfect human thinking, there are simple devices that can be utilized to achieve a variety of business or public policy solutions. One of those that i would like to see used more often is the use of cash prizes to generate new ideas and solutions to problems. Years ago, Netflix put out a prize of US$ 1 million to provide an incentive to teams to assist it to improve by at least 10%, the predictive power of the algorithm that it uses to recommend movies to clients. This blog argued here and here that this approach was superior in many respects provided it was well designed. 

Slate Magazine's Annie Lowrie records how Heritage Health of the US has gone a notch higher by announcing a US$ 3 million prize for a predictive algorithm on identifying the likelihood of patients to seek hospitalization. It has released its data to registered teams to assist it to identify such patients with the intention to utilize that information to reduce costs. It is laudable that a growing number of private sector initiatives have began to use public competitions to provide solutions to business challenges.

 The main gap remains n the reluctance of the public sector to use similar methods. Instead, public sector approaches its recognized problems by inviting high powered research teams working in secret to deliver a document for implementation. In my view, the secrecy that surrounds government operations and interactions with consultancy firms in many countries is also responsible for the wastage of public resources. One advantage of the public competition method is that it payment is made against real results as opposed to firms that take their money in advance and does not share the risks for proposing a bad idea.