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Aligning Incentives

An interesting story at AJMC on a new type of wellness program that better aligns outcomes with reimbursement:

“Most wellness programs are like most gym memberships,” Adam Fawer, Noom’s chief operating officer, said in an interview. Employers have spent lots of money on programs that fail to help or even reach most of the staff, he said. “They feel like they’ve been burned.”

The culprit is the per member per month (PMPM) payment model, which Fawer said initially appeals to companies because it’s predictable, despite a fundamental flaw: wellness providers make the most from employees who don’t participate, because they don’t generate any expenses.

“The incentives are completely misaligned,” Fawer explained. Under PMPM, “I would be excited about the client that I’m helping the least, because I’ll make money from that person. And I’ll be least excited about the client I’m helping the most.”

In early December, Noom unveiled a new payment model for employers: clients will only pay for staff who achieved “transformational” weight loss—at least 5% of their starting body weight—or who lowered their blood pressure or improved blood glucose levels, depending on their health condition.

More information on the company is on their website here.

Generally, this could be a good idea, but employers also need to worry about the wellness program cherry-picking individuals where results are easiest to achieve.  An extreme case, would be measuring weight loss after pregnancy.  As most women lose a significant amount of weight after pregnancy, Noom could target pregnant women to increase their reimbursement.

If pregnant women are included in the reimbursement, Noom will have an incentive to enroll these individuals in their program; if they are excluded, some pregnant women who could benefit from a weight loss program will not be able to get this support.  This is a simple case, but other cases where the patient’s likelihood of success is not observable to the payer, but is observable to Noom could create more perverse incentives.

An alternative would be to allow employers and/or employees themselves identify the individuals who would receive treatment; this approach would be more likely to mitigate the “cherry-picking” problem.

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