Bundled payments – a new reckoning that requires deep understanding of hospital data

One of the primary goals of the Affordable Care Act is curbing health care costs by incentivizing providers to deliver higher-quality care more efficiently. Toward these goals, the Centers for Medicare and Medicaid Services (CMS) has introduced a series of pilot programs over the past few years that tie provider payments more closely to quality and outcome, while also reducing Medicare spending. Until recently, all of these programs have been voluntary in nature – meaning that only those hospitals that anticipated being successful under a particular bundled payment plan elected to participate. However, on April 1, 2016, CMS introduced the mandatory Comprehensive Care for Joint Replacement (CJR) bundled payment program. Under the five-year CJR program, 794 hospitals in 67 regional markets are required to adhere to a bundled payment model for total hip- and knee-joint replacement surgery for their Medicare fee-for-service patients.

Under the CJR program, CMS sets a target episode price for each hospital based upon the hospital’s historical performance, the performance of other hospitals in the same region, along with a reduction of 3 percent as a savings target. The episode for hip and knee replacements includes the inpatient stay for the initial surgery and extends for 90 days after discharge. The hospital assumes full risk for episode spend and quality of services provided for not only the inpatient hospital stay but also post-acute providers such as home health agencies, nursing homes and physical therapists, among others. Hospitals that exceed the target episode price set by CMS will have to pay back the difference at the end of the performance year, while those that realize cost savings will receive additional payments.

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Bundled payments, Centers for Medicare and Medicaid Services, CJR, CMS, Comprehensive Care for Joint Replacement, diagnosis-related groups, DRG, Ernst & Young LLP, readmissions

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