The Payment Reform Landscape: Why Medicare’s Hip And Knee Replacement Payment Model May Not Be The Answer For Other Payers And Purchasers

Some of the most common surgeries that Medicare beneficiaries receive are hip and knee replacements. In 2013, there were more than 400,000 inpatient primary procedures, costing Medicare more than $7 billion for hospitalizations alone.

Medicare spends an average of $16,500 to $33,000 per patient for the surgery, hospitalization, and recovery from hip and knee replacements, but depending on the provider and where the treatment takes place, the quality and cost of these surgeries can vary greatly. The rate of complications such as infections or implant failures after surgery can be more than three times higher at some facilities than others. This can lead to patients being readmitted to the hospital, driving up costs even further.

With all of this in mind, it’s good that the Centers for Medicare and Medicaid Services (CMS) is looking to make reforms in this area. CMS recently announced a proposal for a bundled payment model for hip and knee replacements designed to improve the quality of care and reduce the cost for Medicare beneficiaries.

The Comprehensive Care for Joint Replacement (CCJR) payment model requires hospitals in selected geographic areas to take retrospective bundled payments for lower joint replacement and limb reattachment episodes. The model is designed to hold hospitals accountable for the quality of care they deliver from surgery to recovery, including post-surgery complications that lead to readmissions or protracted rehabilitative care. Under the proposal, depending on the quality of care and the total costs of the episode, the hospital may receive an additional payment or be required to repay Medicare for a portion of the episode costs.

News of another major effort for payment reform is always welcome. Experimentation is essential if we are going to learn what works and develop the most effective payment models for health care. But it is also critical to evaluate these programs to ensure they don’t cause more harm than good.

Our organizations, Catalyst for Payment Reform and Health Care Incentives Improvement Institute, Inc., advocate for the public and private sectors to work together where they can so the signals health care purchasers send to providers are loud and clear. But if a payment program isn’t well designed or the impact of it is unknown, it’s too early to replicate the model. That appears to be the case for the CCJR program. Some of the nation’s leading health care payment experts have responded with criticism of the program design. The criticism seems to be warranted as one of us noted recently.

Medicare’s proposed model would be in place for five years in 75 geographic areas. Before commercial payers and employers run out to replicate the model, they should take the following criticisms into consideration.

Points Of Concern

• The Medicare proposal is hospital-centric. Under the CCJR model, the episode starts when the patient is admitted for surgery (which excludes any costs prior to the procedure) and only the hospitals would be rewarded or penalized depending on the outcomes of the procedure. As a result, physicians, post-acute care providers, and others are left out of the deal, creating potential conflicts between providers instead of collaboration.
• The model prevents the possibility of using outpatient or other suitable sites of care for these surgeries. By focusing solely on hospitals, the program could result in even more consolidation in the health care industry, leading to fewer choices for health care services and higher prices for private purchasers.
• While the proposed model provides financial incentives for hospitals to avoid-post-surgery complications, it does not vary payments to those hospitals with the severity of the patient’s condition.
• The diagnosis related groups (DRGs) targeted by the program are too broad and include procedures unrelated to replacing a hip or knee. This could contribute to higher total costs of care and result in hospitals being penalized unjustly for those unrelated procedures.
• The provider payments would not be reconciled until the end of the year, which means that providers are paid as usual and any rewards or penalties are not proximate to their performance.

Considerations

CMS is giving the public until September 8 to submit comments on the proposal. Here are some thoughts and issues to consider in providing feedback to CMS or when implementing a commercial hip and knee replacement bundled payment program:

1. Keep the provider options open and actively encourage collaboration. Don’t limit the possibilities to acute care facilities. Instead, allow for other options that may be lower-cost sites of service. This will allow for greater competition in the marketplace. In fact, many private and public sector purchasers experimenting with episode-based or bundled payment have designated the physician as the “quarterback” of the episode, not the facility.

2. Adjust for patient severity to avoid a market-average price. Not every patient is the same; if employers and other purchasers are working hard to help enrollees stay healthy and get back to work faster, the price for their bundles should reflect that and they should not have to pay an inflated price due to the sickness or complications of other populations.

3. Keep the providers’ focus on what they can control by limiting the services in the bundle to those that are directly relevant to the targeted procedure.

These considerations are essential to ensuring that bundled payment for hip and knee replacements actually lead to lower costs and higher quality care, and don’t inadvertently reduce access to care or raise the cost of that care. Only then should private payers, employers, and other health care purchasers begin broad-scale replication.