Medicare Announces First Mandatory Bundled Payment Model: Comprehensive Care for Joint Replacement - McDermott+Consulting

Medicare Announces First Mandatory Bundled Payment Model: Comprehensive Care for Joint Replacement

Hospitals in the 75 metropolitan areas selected for mandatory participation in the new payment model should begin preparations to establish partnerships with appropriate providers and develop internal infrastructure to manage their participation in the program. Comments on the proposed rule are due September 8, 2015.


On July 9, 2015, the Centers for Medicare & Medicaid Services (CMS) proposed to implement a bundled payment model for hip and knee replacements that would require the mandatory participation of most hospitals in 75 metropolitan areas around the United States. The model, which is scheduled to begin on January 1, 2016, represents a dramatic leap toward the agency’s goal of increasing the number of payments made pursuant to outcomes-based alternative payment models.

The Comprehensive Care for Joint Replacement (CCJR) model is being proposed under the authority of the Center for Medicare & Medicaid Innovation (CMMI), the health system transformation laboratory established by Congress under the Affordable Care Act to identify, test and spread new payment and delivery models. With the establishment of CMMI, Congress gave CMS unique authority to scale up or expand demonstration projects without the administrative hurdles that generally are required.

Payment Model Overview

Under the CCJR, hospitals in 75 randomly selected geographic areas would be held financially accountable for the quality and cost of care for the entire episode of care from the time of surgery thorough 90 days following discharge. While a variety of providers, such as physicians, hospitals and post-acute care providers, would contribute to the spending during the episode of care, CMS proposes to hold only the hospital where the inpatient stay occurred financially accountable. CMS intends to run the CCJR for five years, and estimates that it will result in savings of $153 million to Medicare over that period.

Under the proposed model, providers would continue to be paid for their services under existing fee-for-service (FFS) payment methodologies, such as the Inpatient and Outpatient Prospective Payment Systems (IPPS and OPPS) and the Medicare Physician Fee Schedule. At the end of the year, all spending for the episode of care would be compared to a target price. The target price generally would expect 2 percent savings over expected episode spending after accounting for a blend of historical hospital-specific and regional spending for lower extremity joint replacement (LEJR) episodes, with the regional component of the blend increasing over time.

Participant hospitals that achieved actual episode spending below the target price and met quality performance thresholds would be eligible to earn a bonus payment from Medicare based on the difference between the target and actual episode spending, up to a specified cap. Hospitals with episode spending in excess of the target price would be financially responsible for repaying the difference to Medicare up to a specified repayment limit. Hospitals would not be required to pay Medicare back if actual spending was greater than the target spending in performance year one (CY 2016), but would be subject to the repayment responsibility in subsequent years with their repayment exposure increasing between years two and three.

CCJR Is the First Medicare Mandatory Bundling Program

While CMS has tested a variety of alternative payment models through its Innovation Center, this model is unique and significant because it would be the first time hospitals would be required to participate. All previous bundled payment initiatives have been voluntary. On January 26, 2015, Health and Human Services Secretary Sylvia Burwell announced a goal of tying 30 percent of traditional FFS Medicare payments to quality or value through alternative payment models or other arrangements by 2016, and tying 50 percent by the end of 2018. At the time, many viewed the Secretary’s goal as ambitious, but this CCJR proposal reflects the seriousness of the Secretary’s goal and is a harbinger of similar proposals to come in the near future.

In designing this payment model, CMS was informed by two previous initiatives: the Medicare Acute Care Episode (ACE) demonstration and the Bundled Payment for Care Initiative (BPCI). The three-year ACE demonstration, which was initiated in 2009 and has since ended, tested the use of a global payment for an episode of care as an alternative approach to payment for FFS delivery. The MS-DRGs tested under the ACE model included 469 and 470, the same as those proposed for inclusion in the CCJR model.

BPCI was initiated in 2013 and is ongoing. Under this demonstration, organizations enter into payment arrangements that include financial and performance accountability for episodes of care. There are four models being tested: Model 1 (Retrospective Acute Care Hospital Stay Only), Model 2 (Retrospective Acute Care Hospital Stay plus Post-Acute Care), Model 3 (Retrospective Post-Acute Care Only), and Model 4 (Acute Care Hospital Stay Only).

Hospital Selection Process and Protections for Certain Hospitals

Participating hospitals would be the episode initiators and bear the financial risk under the proposed CCJR model. CMS has identified 75 MSAs selected for participation by stratified random assignment. Subject to a few exceptions, such as participation in a qualifying voluntary demonstration, hospitals in those 75 geographic areas would be required to participate. Table 3 in the proposed rule identifies the proposed MSAs by MSA number and location. Proposed selected locations include major population centers such as New York City, Miami and San Francisco, as well as less densely populated areas such as Bismark, North Dakota and Lincoln, Nebraska. All hospitals paid under the IPPS and physically located in the selected geographic locations would be required to participate with limited exceptions. These exceptions include those participating in Model 1 or Phase II of Models 2 or 4 of the BPCI initiative for LEJR episodes. Otherwise, hospitals paid under the IPPS and physically located in the selected MSAs would be required to participate. Hospitals outside these geographic areas would not be able to participate. There is no application process for this model.

Sole Community Hospitals (SCHs), Medicare Dependent Hospitals (MDHs) and Rural Referral Centers (RRCs) are eligible for enhanced payments under the IPPS and in some cases under the OPPS, and many facilities may receive additional payments related to their participation in various quality initiatives. The majority of IPPS hospitals also receive additional payments for Medicare Disproportionate Share Hospital and Uncompensated Care, and IPPS teaching hospitals can receive additional payments for Indirect Medical Education. CMS proposes to exclude these payments when calculating actual episode payments, setting episode target prices, comparing actual episode payments with target prices, and determining whether a reconciliation payment should be made to the hospital or funds should be repaid by the hospital. CMS also indicated that it would take into account the effects of sequestration when analyzing episode payments.

CMS also has modified the proposed repayment limits, referred to as stop-loss limits, for rural hospitals, SCHs, RRCs and MDHs. The agency believes these modifications are necessary since these facilities may have a lower risk tolerance and less infrastructure and support to achieve efficiencies for high-payment episodes. These modifications are summarized in the chart below.

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