United States: CMS Proposes Mandatory Hospital Participation In New Bundled Payment Program For Hip And Knee Replacements

On July 14th, 2015, the Centers for Medicare and Medicaid's (CMS) latest proposed rule (Rule) introduced a new alternative payment model. The Rule proposes CMS' latest alternative payment model known as the Comprehensive Care for Joint Replacement (CCJR) Model. The model is targeted at hospitals that do not currently participate in the CMS Bundled Payments for Care Improvement (BPCI) Initiative for BPCI episodes covering hip and knee replacements.1 Under the CCJR Model, select hospitals in 75 predetermined geographic areas across the United States would be mandated to participate. All participating hospitals would be held financially accountable for the quality and cost of an "episode" of care related to each hip or knee replacement performed for a Medicare Fee For Service (FFS) beneficiary.2 The proposed rule is the latest in a series of efforts by CMS to shift payment models away from fee-for-service to alternative payment models to advance quality and efficiency of care.3

How the CCJR Model Works

Starting January 1, 2016, prior to every year during the five performance years of this test model, CMS will set "target prices" for an "episode" of care related to hip and knee replacements. The "target price" would "bundle" payment at a two-percent discount compared to standard FFS rates for all related services received by eligible Medicare FFS beneficiaries who undergo a hip or knee replacement at the participating hospital.4,5 The related services, starting from admission to the participating hospital, including the actual surgery itself, to care provided during the first 90 days following hospital discharge, would all be included under this defined "episode" of care. All providers, including hospitals, and suppliers would be paid under the usual Medicare fee-for-service model through the year for services provided during the episode of care.

Notably, however, at the end of each performance year, actual expenditures for the episode under Medicare Parts A and B would be retrospectively compared to the target price for the participating hospital. If the hospital measures up to certain quality metrics and comes in under the target price, it would be eligible to earn what is known as a "reconciliation payment"—the difference between the target price and actual expenditure for the episode of care, up to a specified cap.

On the flipside, starting in performance year two, the hospital would also be financially responsible for the amount of actual expenditures that exceed the target price, up to a specific repayment limit. To continue to incentivize providers to meet and exceed certain quality metrics and maximize efficiency of care, the CCJR Model would further increase the repayment amount limit that the participating hospital could be potentially liable for in year three of the model.

"By focusing on episodes of care, rather than a piecemeal system," Health and Human Services Secretary Sylvia M. Burwell noted that "hospitals and physicians have an incentive to work together to deliver more effective and efficient care."6

Quality Metrics

To be eligible for the reconciliation payments, the participating hospital would need to meet targets based on three quality performance requirements. The three quality metrics are:

  • Complication rate following elective hip or knee replacement surgery;
  • Hospital readmission rate 30-days following the hip or knee replacement surgery; and
  • Patient assessment of the health providers and system.7

In addition to tying payment or repayment penalties to such quality metrics, CMS noted that the CCJR model also improves quality in two other ways. Namely, CMS noted: (i) quality performance requirements for reconciliation payment eligibility would increase over the lifetime of the model, incentivizing continuous improvement; and (ii) hospitals would avoid complications and readmissions since they increase episode spending and reduce the opportunity for reconciliation payments.

Tools to Help Hospitals and Providers

To help hospitals and providers improve the effectiveness of care coordination to meet quality metrics and expend less than target prices, CMS proposes to waive certain Medicare payment system requirements in connection with the CCJR model. The proposals are as follows:

  • Waive the requirement for a three-day inpatient hospital stay prior to admission for a covered skilled nursing facility stay under certain conditions;
  • Allow payment for certain physician visits to a beneficiary in his or her home via telehealth; and
  • Allow payment for certain types of physician-directed home visits for non-homebound beneficiaries.

Additionally, the Rule would allow participant hospitals to enter into certain financial arrangements with collaborating providers engaged in care redesign with the hospital and who furnish services to the beneficiary during a CCJR Model episode. Such financial arrangements could entail the hospital sharing reconciliation payments to incentivize continued provider collaboration subject to certain parameters. Moreover, participating hospitals could also share repayment or downside risk responsibilities with collaborating providers to mitigate its own risk.

Where Does this Leave Beneficiaries?

CMS has taken care to clarify that beneficiaries would retain the freedom to choose services and providers under the CCJR Model. CMS anticipates that the only change beneficiaries should experience is improved quality and efficiency of care.

How Should Providers Prepare?

Following on the expansion of the BPCI initiative last year, this latest signal from CMS indicates that the agency is pushing forward to meet its goals of tying payment to quality. Providers, who either could be required to participate in the proposed model or are weighing the CCJR Model vs. BPCI, should consider the impact the model would have on them from a financial, strategic planning and patient care perspective. Below, we have listed a few aspects of the CCJR Model which providers should specifically weigh and which they may want to submit comments to CMS on:

  • the mandatory nature of the proposed model for selected providers;
  • the one-year timeframe within which they must be ready to modify practices to meet model requirements;
  • if a hospital could be selected for the CCJR Model, whether the hospital should be allowed to partner with a BPCI Awardee Convener for relevant episodes covering hip and knee replacements instead;
  • for entities participating in BPCI, whether they should be allowed to elect to participate in the CCJR Model instead;
  • whether the financial proposals and methodologies CMS set for the CCJR Model are achievable (e.g. 2% discount factor) and how much risk providers should be subject to under the model; and
  • what steps hospitals, orthopedic surgeons and post-acute providers should take to collaborate in preparation for the model's January 1, 2016 launch.

CMS is soliciting public comment from all stakeholders to voice concerns and suggest possible modifications through September 8, 2015. Please feel free to reach out to us with any questions on the CCJR Model or for assistance in submitting comments to CMS.


[1] Hospitals currently participating in Model 1 or Phase II of Models 2 or 4 of the Bundled Payments for Care Improvement (BPCI) initiative for the lower extremity joint replacement clinical episode would be excluded from this CCJR Model. More information on proposed hospital participants can be found in the Proposed Rule.

[2] For a list of the 75 geographic areas, see here. The geographic areas were defined by metropolitan statistical areas (MSAs), or counties associated with a core urban population of at least 50,000. Eligible MSAs must have had at least 400 eligible hip or knee replacement cases between July 2013-July 2014, of which no more than 50% occurred in a Maryland hospital or a hospital participating in the Bundled Payment for Care Improvement (BPCI) initiative for hip or knee replacements.

[3] For more on CMS' goals, see here.

[4] The two-percent discount would be over the expected episode spending and incorporate a blend of historical hospital-specific spending and regional spending for hip and knee replacement episodes, with the regional component of the blend increasing over time.

[5] The episode would be for care related to MS-DRG 469 or 470.

[6] See July 9, 2015 CMS press release here.

[7] The specific quality indicators are also known as National Quality Forum # 1550, 1551, and 0166, respectively. More information on the quality metrics can be found in the Proposed Rule.

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