Published 8/1/2015
Elizabeth Fassbender

Are Bundled Payments Here to Stay?

CMS proposal would establish new payment model

On July 9, 2015, the Centers for Medicare & Medicaid Services (CMS) released a proposed rule to establish a new Medicare payment model for primary total hip and knee arthroplasty (THA, TKA) procedures performed in hospital inpatient settings. Under the proposal, hospitals would be accountable for all costs associated with the entire episode of care—from the time of surgery through 90 days after discharge. This new payment model applies to hospitals only, although physicians’ fees—as well as post-acute payments (such as to skilled nursing facilities)—will be included in calculating both the target price and the actual episode expense. Hospitals will be responsible for reconciling actual expenses with the target price.

The Comprehensive Care for Joint Replacement (CCJR) Model would be tested at hospitals in 75 randomly selected geographic areas over the next 5 years. All hospitals in those regions (with the exception of hospitals currently participating in Model 1 or Phase II of Models 2 or 4 of the Bundled Payments for Care Improvement [BPCI] initiative) would be required to participate. If adopted, the proposal would go into effect in January 2016, and would affect more than 100,000 Medicare beneficiaries.

“AAOS is closely reviewing the proposed rule and will be submitting comments to CMS,” stated AAOS President David D. Teuscher, MD. “On initial review, we have some concerns about what appears to be the conversion of an evolving demonstration project to a mandatory, hospital-driven payment framework. Payments that reward higher quality care must be based on appropriately risk-adjusted, patient-centric, transparent measures that empower physicians and surgeons to deliver the best value for the patients they serve.”

Defining an episode of care
Specifically, the model would hold hospitals financially accountable for the cost and quality of a CCJR episode of care. An episode of care is defined by the admission of an eligible Medicare fee-for-service beneficiary to a hospital paid under the Inpatient Prospective Payment System that results in a discharge paid under MS-DRG 469 (major joint replacement or reattachment of lower extremity with major complications or comorbidities) or MS-DRG 470 (major joint replacement or reattachment of lower extremity without major complications or comorbidities).

The bundled payment will cover all Part A and Part B services beginning with hospital admission through 90 days following discharge, including the following:

  • physician services
  • inpatient hospital services (including readmissions)
  • inpatient rehabilitation facility services
  • skilled nursing facility services
  • outpatient services
  • clinical laboratory services
  • durable medical equipment
  • Part B drugs

Determining the bundled payment
The CCJR model is a retrospective bundled payment model. CMS will provide each participant hospital with a target price prior to the start of each performance year. Hospitals will be paid, or have to pay back Medicare, after an annual reconciliation process that compares actual episode spending to the target price.

Similar to the BPCI initiative, the target price will be set based on expected and historic spending and incorporate a 2 percent discount over expected episode spending. Hospitals with spending exceeding the target price would be responsible for paying Medicare the difference up to a specific limit. Hospitals with spending under the target price would receive a reconciliation payment, or bonus of sorts. This payment is also dollar-limited and is only payable if certain quality performance measure are also met.

Providers and suppliers would be paid under the existing fee-for-service payment systems in the Medicare program, but participant hospitals could enter into financial arrangements (“gainsharing”) where providers and suppliers may share savings or financial accountability for expenditures above the target, subject to parameters outlined in the proposed rule.

Hospitals must meet quality performance thresholds on the following three required quality measures to qualify for the reconciliation payment from Medicare:

  • hospital-level risk-standardized complication rate
  • hospital-level 30-day all-cause risk-standardized readmission rate after THA and/or TKA
  • hospital consumer assessment of healthcare providers and systems (HCAHPS) survey

These measures are currently approved for reporting by inpatient hospitals under the Inpatient Quality Reporting program.

Why now?
According to CMS, the new CCJR model would contribute to the goal of having 50 percent of all Medicare payments made via alternative payment models by 2018. It would also encourage hospitals, physicians, and postacute care providers to work together to improve the quality and coordination of care from initial hospitalization through recovery.

“We are committed to changing our healthcare system to pay for quality over quantity, so that we spend our dollars more wisely and improve care for patients,” said Health and Human Services Secretary Sylvia M. Burwell. “Today, we are taking another important step to improve the quality of care for Americans who have hip and knee replacements through Medicare every year.

“By focusing on episodes of care, rather than a piecemeal system, hospitals and physicians have an incentive to work together to deliver more effective and efficient care,” she continued.

What’s next?
Those orthopaedic surgeons who have participated in the current voluntary bundled payment program report better care coordination and financial benefits from bundled payments. The AAOS will closely review the proposed rule and submit comments to CMS by the September deadline.

“Total hip and knee replacement surgeries are two of the most successful and life-enhancing surgical procedures,” stated Thomas C. Barber, MD, chair of the AAOS Council on Advocacy. “Orthopaedic surgeons have been leaders in the development and implementation of innovative payment models to ensure the highest quality of care for these patients, but we must retain our involvement in defining the appropriate methodologies to accurately measure quality and ensure patient care is never compromised.”

Elizabeth Fassbender is the communications manager in the AAOS office of government relations. She can be reached at fassbender@aaos.org

10 Things to Know about CCJR

  1. The Comprehensive Care for Joint Replacement payment model will focus specifically on total hip and total knee arthroplasty.
  2. Mandatory participation applies to hospitals only, not to physicians or postacute providers.
  3. Throughout the proposed 5-year payment model, providers would continue to be paid under existing Medicare payment systems.
  4. Each participating hospital will be assigned a target episode price, covering all care from the time of surgery to 90 days after discharge.
  5. Target prices are based on a blend of regional and hospital expenditure data; the ratio of regional to hospital data will change over the years, until the target is based entirely on regional data.
  6. At the end of each year, hospitals that spend less than the target price and achieve threshold performance on three quality measures would receive a bonus payment, up to a specified cap. Hospitals that spend more than the target payment would be responsible for repaying Medicare for the difference, up to a specified cap. Repayment will not be required the first year of the program (2016).
  7. The proposal caps risk at both ends (upside and downside); certain hospitals will have lower caps than others.
  8. Hospitals may enter into gainsharing and other arrangements (within limits) with physicians and other providers and suppliers to improve care coordination and reduce costs.
  9. Patients would retain the right to choose their physician and hospital.
  10. To guarantee that the program will result in savings, Medicare will take a 2 percent discount off the top.

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