According to the NIH/National Institute of Arthritis and Musculoskeletal and Skin Diseases, over one million hip or knee replacement surgeries are performed each year in the United States. These procedures are generally the last resort for individuals afflicted with osteoarthritis, inflammatory arthritis, malignancies of the distal femur, proximal tibia and knee joint or avascular necrosis. In 2013, Medicare spent over $7 billion dollars for hip and knee replacement procedures. The reduction of these costs is behind the Center for Medicare and Medicaid Services (CMS) new “Comprehensive Care for Joint Replacement Model” proposed rule that was published in the July 14, 2015 Federal Register. The public comment period on this proposed rule closed on September 8, 2015.
In order to understand the significance of this proposed rule, Medicare’s current payment format should be examined. Medicare, under its Part A and Part B coverage, has traditionally paid for each individual service involved in the hip or knee joint replacement procedures based on a “Fee-for Service”(FFS) model. This model however rewards providers based on the quantity of services being provided to the patient as opposed to the quality of coordinated care for the patient. The Center for Medicare and Medicaid Innovation Center, created under the Affordable Care Act, was tasked with the mission of providing better compensation alternatives that focus on improving the quality of care for Medicare beneficiaries, while reducing Medicare, Medicaid or Children’s Health Insurance Program (CHIP) expenditures.
The Bundled Payments for Care Improvement (BPCI) initiative developed by the Innovation Center seeks to accomplish this by combining payments for the multiple services a beneficiary may receive during an “episode of care”. Currently, four models of care involving bundled payments are being tested. Model 1, which began in April of 2013, defines an episode of care as an inpatient stay in an acute care hospital. In this model, the hospital is paid a discounted amount based on payment rates established under the Inpatient Prospective Payment System. Physicians however continue to be paid separately for their services. Models 2 and 3 both involve a retrospective review of the FFS payments actually made in the claims involving inpatient stays in acute care hospitals against bundled target prices for these episodes of care. Depending upon the differences between the FFS payments made and the bundled target prices, Medicare may either make additional payments or recoup its overpayments. In Model 4, a hospital receives a single predetermined bundled payment for all the services provided during the entire inpatient hospital stay from Medicare. Physicians and other providers are reimbursed for their services by the hospital. Testing of Models 2, 3 and 4 began in October of 2013 and is being done in phases.
The Comprehensive Care for Joint Replacement Model proposed rule involves testing of bundled payments and quality measures for episodes of care associated with lower extremity joint replacements or LEJRs. Hip and knee replacement procedures were selected for this model since the cost of these procedures and the complications associated with them vary greatly among providers. According to CMS’ press release: “The rate of complications like infections or implant failures after surgery can be more than three times higher at some facilities than others, which lead to hospital readmissions and prolonged recoveries. And the average Medicare expenditure for surgery, hospitalization and recovery ranges from $16,500 to $33,000 across geographic areas”.
This proposed model would be implemented in 75 geographic areas that have a population of at least 50,000 people in a main urban area. Participation under this model would be mandatory for those hospitals that are not enrolled in Model 1 or Phase II of Models 2 or 4 of the BPCI initiative for LEJR episodes. CMS anticipates that this model would improve the coordination and transition of care as well as the coordination of items and services paid for through Medicare Fee-For Service. Use of this model should also “encourage more provider investment in infrastructure and redesigned care processes for higher quality and more efficient service delivery, and incentivize higher value care across the inpatient and post-acute care spectrum spanning the episode of care”.
Under this proposed rule, the five year test period would begin on January 1, 2016 and end on December 31, 2020. During the test period, Medicare would pay the FFS for the episode of care for the LEJR that would begin at admission to the hospital and end 90 days after discharge. At the end of each year, Medicare’s payments for the episodes of care would be reconciled against an established target price. If the hospital met the quality performance threshold and the episode FSS payment was lower than the target price, Medicare would pay the hospital the difference. If however the FSS payments were higher than the target price, after the first year of the test, the hospital would have to repay the difference. Critics of the proposed rule believe that requiring hospitals in 75 different regional markets to take the risk associated with a 90 day joint replacement episode is “too much too fast”. There is also concern regarding the mandatory nature of the participation in this test period.
Given the proposed start date of January 1, 2016, we would expect a final rule by the end of the year. CMS’ goal of improving quality of care while reducing Medicare’s expenditures for hip and knee replacement procedures is admirable. The expected cost reduction benefit under this model however should be incorporated in CMS’ Workers’ Compensation Medicare Set Aside review programs with published “episode of care” prices. Although the WCMSA Reference Guide has outlined CMS’ surgery/procedure pricing model, the application of this model has resulted in wide ranges of cost projections for essentially the same procedure within the same area.
We will keep you advised of further developments.