Change or Wait: A Game Theory Exploration of Strategies for Vendors and Providers for the EHR Incentive Programs in 2015

Background/Objective:  As of 2015, Meaningful Use (MU) electronic health record (EHR) incentive program participation requires upgrading to a 2014 certified EHR. MU incentives for providers are substantial (approximately $2k to $21k). Changing vendors is costly (about $15k to $75k) while not using a certified EHR can result in payment adjustment. Vendors incur significant costs to upgrade, while not upgrading may result in loss of customers. We study strategies for vendors and providers and explore possible outcomes using game theory models.

Methods:  In a simplified game theory setting, vendors are player 1 with two strategies: do not upgrade (Wait/W) or invest resources to upgrade the EHR (Change/C). Providers are player 2 with two strategies: Wait/W and forgo MU incentives or Change/C to a new vendor and incur additional costs. Assuming both players are rational, we may have two types of games. One is an extensive-form game where the vendors move first and thus a backward induction facilitates sub-game perfect equilibrium. The other is a strategic-form game where players may use mixed strategies in a Nash equilibrium setting. We calculate the payoffs and determine the players’ strategies based on various providers’ MU status scenarios.  

Results: With four strategy pairs (W, W), (W, C), (C, W), and (C, C), we observe (C, W) as the optimal outcome, where vendors upgrade and providers do not change EHR. But given various payoff situations, we may end up with equilibrium that is costly for both of the players. We explore all the possible scenarios and validate the models with real-world data. 

Conclusion:  Policy makers could use game theory as a way to test the potential impact that incentives and penalties can have to motivate changes in provider adoption and use of EHR, while determining potential payoffs to vendors and providers.