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The phrase “closing the loop” is often used when traditional communication approaches have failed or have been ineffective.  In a recent article[1], a writer said the following:

“Closed-Loop Communications or Closing the loop is akin to following up, checking in or closing the deal. The term comes from control systems where they close the control loop in order for the system to remain stable. The opposite of a stable system is one that is unstable. In control system parlance, this is referred to as an open loop system since it has no feedback and thus will likely spin out of control — kind of like projects without any follow-up.”

This concept applies to Value Based Reimbursement and Incentive programs.  Such programs were developed an implemented in an attempt to pro-actively and positively impact the cost and quality of health care.  We want to reduce the cost of care and increase the quality of health care that is provided to patients.

Unfortunately, not everyone follows up, checks in and makes sure it worked.  As described above the goal is to create a stable control system and one that incentivizes providers to deliver high quality, cost-effective, patient centered healthcare.

This article will explore how to close the loop and make sure it works for everyone concerned.

The goal is to create a stable control system and one that incentivizes providers to deliver high quality, cost-effective, patient centered healthcare.

Primary Goals of Value Based Reimbursement

There are several goals of such a program, but the key ones are:

  • Communicate a realistic budget for health care services (i.e., a la population based health).
    • Requires appropriate risk adjustment for the population assigned to the provider (i.e., use a good risk adjustor)
    • Requires appropriate recognition of reasonable prices of services required to meet the health care needs of this population (i.e., understand payer’s allowed cost basis)
    • Requires an accurate description of what services are to be included (e.g., consistent with the distribution of financial responsibility (i.e., DOFR)
  • Accurately measure the actual results for comparison with budgets
    • Review directly assigned (i.e., PCP assignment) or attributed cost for comparison
    • Properly account for withholds, if any
    • Incorporate adjustment for Incurred but Unreported Claims liability
    • Segment results into key types of service for accountability purposes.
  • Compare actual results with expected results to determine performance
    • Tie back outcomes to expectations
    • Incorporate risk mitigation approaches (i.e., withholds, stop-loss, etc.)
    • Develop incentive payments/penalties
    • Communicate results to specific providers (at least on a monthly basis, with year-to-date results)
    • Compare to peers for appropriate peer pressure effect
    • Incorporate benchmark comparisons, showing what is possible
    • Dig into outliers from both a financial and clinical basis to help the providers understand what could be changed (i.e., provide hope or a path to success)
  • Refine program to achieve optimal results
    • Part of the continuous quality improvement process (i.e., Plan, Do, Check, Act)

Commonly Observed Problems

No program is perfect, but we often see very similar problems emerge with different applications of Value Based Reimbursement.  Some of the most common issues are:

  • Ineffective risk adjustor or no risk adjustment applied to budgets: Provider confidence plummets when they are held accountable to unrealistic goals or targets.  It only takes one situation to erode risk and once done it is nearly impossible to rebuild provider trust.
  • Too much risk is transferred to providers without a reasonable management plan
    • Law of large numbers – solution to having too few assigned members
    • Provider magnets – certain specialties attract patients with specific medical issues, need to minimize the adverse impact of that (e.g., endocrinologists as primary care providers)
    • Catastrophic claims – internal provider stop-loss can resolve much of this.
  • Provider inactivity explained in terms of lack of control: Providers need to learn what to do to avoid financial problems.  When they don’t have a solution, a common explanation is that is something they can’t control.  They need to have a toolkit of solutions to help them effectively control their referral network.
  • Infrequent provider reporting: Providers need real-time information to understand how they are doing. The shorter the time lag between the time something happens and a report shows the financial result, the greater the impact on provider behavior.  Monthly reporting is mandatory to effectively impact what providers do.  This report needs to estimate potential bonuses/penalties to help provider understand the impact of what they are or are not doing.
  • Lack of actionable reporting: Providers need reports that empower them to make change.  Providers do not need complex reports they can’t understand or cannot see what they should do about the results.  Primary care providers should do the following:
    • Provide appropriate primary care services to their assigned patient base
    • Refer on a timely and appropriate basis to the appropriate specialist to resolve issues they cannot provide
    • Monitor the performance of those they referred to assuring that they made a good choice
    • Challenge the referral providers when disappointments emerge
    • Utilize these experiences to improve future choices.
  • Infrequent clinical discussions with clinical oversight. Best programs have regular communication with medical director or designee to discuss how they could proactively improve results.  Critical to avoid an abandonment feeling by providers.  Leadership is there to help improve results so all can be on the winning side.

Completing the Circuit

When the circuit is completed, with the appropriate control systems, monitoring systems, oversight and coaching the Value Based Reimbursement and Incentive program is positioned for great success. It is the author’s opinion that this will work for all stakeholders when appropriately established and operated. It only takes a little short cut to derail the entire process.  Rather than throwing out the whole process, we need to be careful to design for success. After all we have a serious problem we are trying to address.  We need to improve the quality of care and at the same time reduce the increasingly unaffordable cost of health care.

[1]Jarie Bolander, “6 Steps to Closed-Loop Communications”, The Daily MBA, July 31, 2019.

About the Author

David Axene, FSA, FCA, CERA, MAAA, is the President and Founding Partner of Axene Health Partners, LLC and is based in AHP’s Dallas, TX office.