The Use of Game Theory

Abstract

This chapter demonstrates an application of mathematical game theory for allocating cost savings (gains) between cooperating providers. As an alternative to traditional accounting allocation basis, there is a growing interest in cost allocation principles based on logic of game theory. The most widely used method of joint-cost (savings) allocation is the Shapley value, which provides a fair cost allocation based on each participant's estimates of the net benefits (net values) expected from cooperation with other groups of participants (coalitions). An example is provided for distributing the savings of the bundled payment between four cooperating participants: hospital, physician group, skilled nursing facility, and home health agency.