• Sidebar: Bundled Payments Go Mandatory

    Lola Butcher Jul 28, 2016

    Provider organizations that work in partnership with many stakeholders are finding that bundled payment initiatives can bring financial rewards and improve patient outcomes.

    When the Comprehensive Care for Joint Replacement (CJR) Model went into effect April 1, the Centers for Medicare & Medicaid Services began using mandatory bundled payments to pay for hip replacement and total knee replacement surgeries in 67 geographic areas around the country.

    The CJR model builds off the government’s experience with the Bundled Payments for Care Improvement (BPCI) program, which continues with voluntary participation by 415 hospitals, 305 physician groups, and 723 skilled nursing facilities. The two payment models are similar, but several elements are different, including calculation of target prices, risk mitigation, and payment reconciliation frequency.

    About 800 hospitals are required to participate in the CJR program, which has the following rules:

    • The episode of care begins with hospital admission for surgery and ends 90 days post-discharge. The episode includes all items and services during that span, including physician services, inpatient hospitalization, post-acute care, outpatient therapy, laboratory services, drugs, durable medical equipment, and more.
    • At the beginning of each performance year, CMS provides participating hospitals with “target prices” that represent a discount relative to expected episode spending. The targets are based on each hospital’s historical spending and on regional spending for the procedures.
    • During the year, CMS pays providers under the existing fee-for-service payment system. At the end of the year, hospitals that spend less than the target price and meet certain quality goals will be eligible for a “reconciliation payment” of up to 5 percent of their target price in the first two performance years. That share will increase to 20 percent in the fourth and fifth years of the program.

    Starting in Year 2, hospitals that do not hit the spending target will have to pay Medicare for the difference. The stop-loss will be 5 percent initially before growing to 20 percent in the fourth and fifth years of the program.

    Lola Butcher writes about healthcare business and policy topics for HFMA.