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Sunday, December 13, 2009

Hard wired gamers

The Wall Street Journal

DECEMBER 7, 2009

Miles for Nothing: How the Government Helped Frequent Fliers Make a Mint
Free Shipping of Coins, Put on Credit Cards, Funds Trip to Tahiti; 'Mr. Pickles' Cleans Up

Enthusiasts of frequent-flier mileage have all kinds of crazy strategies for racking up credits, but few have been as quick and easy as turning coins into miles.

At least several hundred mile-junkies discovered that a free shipping offer on presidential and Native American $1 coins, sold at face value by the U.S. Mint, amounted to printing free frequent-flier miles. Mileage lovers ordered more than $1 million in coins until the Mint started identifying them and cutting them off....

Complete story at

I just thought this story was so interesting at multiple levels. First it was illuminating in terms of human behavior and the genius of human ingenuity. There is little reason to hold those who devised the program for the US Mint accountable. Who would have thought ahead of time that this program would be "gamed" by people using the frequent flyer system? Even if someone involved thought of this they would be embarrassed to raise this as a concern. I can hear the conversation now.. "Don't be so jaded!!! Would you do such a thing?"

The truth is that most people would not think of this and if they did, the little voice in their head would tell them that perhaps this was not quite right to do. Whether or not most people would not do this becomes irrelevant in the longer term. Someone, somewhere had a eureka moment when they realized how to game this program and this particular someone had no problem testing out their hunch, which paid off handsomely.

This type of information always gets out and spreads almost like a virus. At first, there may be resistance because something does not feel right. Perhaps it is legal but given the fact that this was not what the program was intended for, most people will elect not to pile on board. That is just a temporary state. Over time as we see others exploit such opportunities, we tend to be less resistant being swayed by seeing what we think we have lost. We do not like to "leave money on the table."

You might ask what this may have to do with health care and the health care reform debate. The story was just about a small element of the US Mint and the exploitation of an obscure program by perhaps dozens of people. The difference between the US Mint and health care is that despite the name (US Mint), the real money is in health care. Within the present and proposed health care structure and innumerable "gaming" opportunities. Furthermore, there are entire companies filled with very smart people whose only job is to think about ways to game the present system and any proposed changes. When one of these people or entities has a eureka moment, the information spreads at the speed of light to armies of people who sole focus is to exploit the discovery and turn this into dollars in their pockets.

Oddly enough, the entities which seem to be outside this information flow are those entities which devise the ground rules. Perhaps they are not actually outside the flow, they are just not at liberty to respond in any time frame relevant to the real world. The net effect of this is the unintended consequence of the complex command and control structure is to create what amounts to be unlimited opportunities to the gamers. In other words, those who are rewarded most are those who, virtually everyone would agree at the outset, were those who displayed behaviors which, although not illegal, were the least emulatable when the process began. Over time, the consistent reward of these behaviors creates a world where they are no longer frowned upon, but in fact become the aspirations of the many.

If these behaviors actually created value for patients, this would be a virtuous cycle. Unfortunately, the hit rate for rewarding what should be rewarded and for pricing specific activities appropriately is not even close to ideal. You might ask for specific examples. Just listen to any advertisement for specific medical services. No physician or hospital system is going to advertise for services that lose them money. Look at durable medical equipment (scooters for no cost), medications advertised to the public, and a host of specialty procedures (gamma knife surgery, specialty orthopedic practices focusing on young people, sinus surgery, high end imaging, endoscopy, skin cancer surgery, etc).

I do not mean to imply that no one actually benefits from these services. Many patients do. However, the criteria for the application of these technologies ultimately becomes defined by those who game the system most aggressively. When there are tangible and immediate rewards for stretching the rules and no brake on this type of behavior other than individual ethical constraints, the ethical framework will morph over time. Behavior which would be viewed as unthinkable and unlikely at the outset becomes the norm.

Each round of state intervention in the health care market has created new gaming opportunities and there is no reason the believe that the next rounds will provide any fewer chances. In fact there is every reason to suspect that they will provide a bounty of opportunities unlike anything seen heretofore. We have an army of consultants and employed MBA's deployed with the charge of find the money. They are to a great degree unaware of and unconstrained by the nuances of medical practice. Their success is measured by the most measurable of metrics...dollars. Let the games begin!

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