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The Potential Impact of Medicare's New Mandatory Bundled Payments

Researchers at the University of Michigan Institute for Healthcare Policy and Innovation used real-world data to look at the potential impact of Medicare’s new mandatory bundled payments approach, currently called Comprehensive Care for Joint Replacement. Their findings are published in the September 2016 issue of Health Affairs. The payment program, which was launched in April 2016, only applies to hip and knee replacements in 800 hospitals in certain metro areas. However, its use is likely to expand to more conditions and include more hospitals.

According to a release from the university, the study found that hospitals that take care of the oldest, sickest, and most complicated patients could suffer financially under the new approach. Yet the release notes that there’s still time to adjust the approach to make the playing field more level,

The release notes that the Centers for Medicare and Medicaid Services (CMS), a federal agency, has put an emphasis on the approach as it tries to encourage smarter spending for the care of millions of older and disabled Americans.

CJR pays hospitals a set “bundled” amount for the full range of care provided to a hip or knee replacement patient, rather than paying individual bills for parts of that care such as the operation, hospital stay, and care after the hospitalization. “Reconciliation payments” then reduce payments to hospitals if their spending is above a target, and increase payments if spending is below a target.

The release quotes lead author Chandy Ellimoottil, M.D., M.S. as saying, “Previous bundled payment programs have based reconciliation payments on a hospital’s own past performance, but under CJR those payments gradually become based on a comparison with hospitals in a wide region. We found that this will result in more penalties for hospitals that care for more complex patients. We also found that changing the program to account for patient complexity would dampen this impact.”

The new analysis uses anonymous Medicare data from 23,251 Michigan residents who had hip or knee replacement surgery at 60 hospitals across a three-year period.

The hospitals that operated on patients who had more co-existing health problems, or were older or more seriously ill, stood to lose hundreds of dollars per patient under the program, the research team found. If the program used a standard measure to adjust for patient complexity, those hospitals could hold on to more than $100,000 per year.

That amount may be a drop in the bucket in a large hospital’s budget. But if mandatory bundled payments using the CJR formula get rolled out in other types of care, the numbers could become very large, says Ellimoottil.

Adjusting a hospital’s performance based on how old or sick a patient is – a process called risk adjustment – is already used in many other Medicare programs that assess health care quality and spending..

Introducing appropriate risk adjustment into mandatory bundled payments could still happen even in the CJR program, the authors say. That’s because the formula for paying or penalizing hospitals based on the regional price comparison doesn’t start to take a major effect until the third year of the program.

“There could be a lot of unintended consequences from this approach unless risk adjustment is added,” Ellimoottil warns. “In past bundled payment programs, patient complexity didn’t matter because hospital payments have been based on a comparison with the hospital’s own past pricing, which reflects the complexity of the patient population it serves. Now, under this new model of regional comparison, complexity becomes relevant, and risk adjustment is needed.”

The form of risk-adjustment the team simulated, based on the CMS-HCC model, is an accepted model used in other settings. CMS didn’t include it in the CJR program, the agency said, because it hasn’t been validated for bundled payment in orthopedics. The new paper may help in that regard.

Ellimoottil, a urologist whose research extends to bundled payments for many types of care, notes that the new paper essentially confirms what many providers voiced concern about when the Medicare agency was accepting public comments on the CJR program before it went into effect.

“Patient complexity matters. Rolling out a one-size fits all model could really hurt hospitals that are trying to appropriately treat patients. We don’t want to incentivize reducing access to care for Medicare patients who are medically complex.”


In addition to Ellimoottil, the research team includes fellow IHPI member and U-M orthopaedic surgeon Brian Hallstrom, M.D., who leads the Michigan Arthroplasty Registry Collaborative Quality Initiative.funded by Blue Cross Blue Shield of Michigan. Senior author David Miller, M.D., M.P.H., and co-authors Andrew Ryan, Ph.D., and James Dupree, M.D., M.P.H. are all IHPI members.

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