For Medicare's Joint Replacement Model, a Steep Learning Curve

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By Michael D. Williamson

April 5 — Many hospitals in certain parts of the country are scrambling to understand the implications of a new five-year Medicare payment model for knee and hip replacements that holds them financially responsible for improving quality and coordinating care.

Device companies are also moving quickly to understand how the new Medicare payment demonstration for orthopedic device procedures could affect sales, Lesley Yeung, a Washington-based life sciences attorney at Epstein Becker & Green PC, told Bloomberg BNA March 31.

The demo launched April 1 and is testing Medicare payment changes for certain orthopedic procedures in most hospitals located in 67 geographic areas.

A number consultants, health-care policy analysts and industry group leaders told Bloomberg BNA that device companies, hospitals and other providers are anticipating the Centers for Medicare & Medicaid Services' Comprehensive Care for Joint Replacement Model (known as both CJR and CCJR) to present a steep learning curve filled with challenges and benefits.

In addition, sources said the hospital and device industries, as well as Medicare, may be reshaped by the program.

Preparation Urged

Hospitals thinking they don't need to worry about Medicare's new payment demonstration for knee and hip replacements should re-evaluate that decision, Fred Bentley, vice president at Avalere, a health-care consulting firm, told Bloomberg BNA March 31.

Some hospitals subject to the payment changes in the demonstration model are under the false impression they don't need to immediately pay attention to the program's new payment policies because they won't face any downside risk, or payment penalties, during the first year, Bentley said.

“However, I would say, it's absolutely essential to know what's going on” during the model's first year, Bentley said. Many policies, ranging from hospitals' device purchasing protocols to care coordination arrangements with post-acute care providers, will need to be redesigned during the program's first two years for hospitals to avoid financial penalties, he said March 31.

Runs Through 2020

Under the program, outlined in a November 2015 final rule, hospitals will be held accountable for the quality of care they deliver to Medicare fee-for-service beneficiaries for hip and knee replacements from surgery through recovery .

In an April 1 blog posting, Patrick Conway, the CMS principal deputy administrator and chief medical officer, said the model “looks to improve care and quality for the most common procedures that Medicare beneficiaries have, hip and knee replacements.”

In 2014, more than 400,000 Medicare beneficiaries received a hip or knee replacement, costing more than $7 billion for the hospitalizations alone, Conway added. “Despite the high volume of these surgeries, quality and costs of care for these hip and knee replacement surgeries still vary greatly among providers. For instance, the rate of complications, like infections or implant failures, after surgery can be more than three times higher for procedures performed at some hospitals than at others.”

The CMS says the quality and cost of hip and knee replacement surgeries vary greatly among health-care providers.

Most hospitals in 67 geographic areas, chosen at random by the CMS, will receive additional Medicare payments if quality and spending performance are strong.

The areas chosen include large cities such as Los Angeles, Cincinnati and New Orleans, as well as smaller cities such as Lubbock, Texas, and Flint, Mich.

If quality and spending performance falter after 2016, hospitals in those 67 areas may have to repay Medicare for a portion of the spending for care surrounding a lower extremity joint replacement procedure.

According to the final rule, the CMS estimates the model will apply to about $1.2 billion in spending in 2016 and $3 billion in spending in 2020. The model will conclude Dec. 31, 2020.

The CCJR program is likely to net approximately $343 million in savings to Medicare over the duration of the model, the final rule said.

CMS plans to evaluate the program annually. In addition, the Medicare agency will conduct a final evaluation that will study several aspects of the program, including payments, utilization and outcomes.

That evaluation will encompass all five of the model's performance years and may examine how the model changes payment, utilization and outcome and other measures through 2022.

Program evaluations will also examine to what extent the model's results could be extrapolated to other markets and/or nationally.

The CMS first announced the program in a July 2015 proposed rule . At that time, the CMS envisioned starting the model Jan. 1, 2016, but that starting point was delayed.

Hospital Preparation

Hospitals affected by the model are at varying levels of preparedness, Jessica Walradt, a senior payment reform specialist at the Association of American Medical Colleges (AAMC), an industry group for teaching hospitals, told Bloomberg BNA March 31.

As a first step, hospitals subject to the program should be getting claims data from the CMS about previous hip and knee replacement procedures they've completed, Walradt said.

The data, at the most basic level, are going to show participating facilities the average cost for a lower extremity joint replacement procedure during the entire episode of care (from surgery through recovery), for the past three years, Bentley said. The CMS data will be broken down by care setting, he added.

Hospitals will receive information on the target price that the CMS is setting for the episode of care, Bentley told Bloomberg BNA. A hospital's target price will be a blending of two different prices.

The first price component, Bentley said, will be the hospital's own historical price for hip and knee replacements. The second price component is based on the average regional price for hip and knee replacement procedures.

Some hospitals are very concerned about regional pricing, Walradt said.

“It can be a shock to the system to go from fee-for-service [Medicare] to regional pricing.”

—Jessica Walradt, Association of American Medical Colleges

“It can be a shock to the system to go from fee-for-service [Medicare] to regional pricing,” she said.

Data Changes

Over time, the weights making up the target price will shift. Bentley said that in the first year, the target price will be more heavily weighted toward a hospital's own historical prices for the procedures. By the project's third year, the target price for an individual hospital will be more closely tied to the regional prices . “This is to incent competition and getting a market as a whole to see cost reduction,” Bentley told Bloomberg BNA.

Hospitals received the data from the CMS earlier this year, Joanna Hiatt Kim, the American Hospital Association's vice president of payment policy, told Bloomberg BNA April 1.

“This data is critical so hospitals know how their patient care is going and the path they're taking,” Kim said. Moreover, the data will be an important tool that hospitals can use to chart improvements, she said.

However, Bentley said the data are complex and may be causing problems for hospitals participating in the model that don't have experience with bundled payment.

Hospitals should use the data to design device procurement and treatment policies with post-acute care providers that bring total episode costs down to or below the CMS' target price, Bentley told Bloomberg BNA. There's a certain level of sophistication needed to do this and some hospitals may not possess that, he said.

Narrow Networks?

Hospitals aren't the only entities facing changes as the comprehensive joint replacement model begins.

Hospitals are going to be encouraged to form care coordination networks with outside rehabilitation and skilled nursing facilities, James Michel, the senior director of Medicare reimbursement and policy at the American Health Care Association (AHCA), an industry group for nursing homes and other post-acute care facilities, told Bloomberg BNA March 31. Michel added some hospitals are already forming these networks.

However, in many cases, these networks will be too narrow, Michel said, and the problem is compounded by the fact the CMS doesn't specify how to form them.

“Hospitals are developing these networks based on different quality metrics and other economic considerations,” he said.

For instance, under the model, the CMS is offering a limited waiver from the current three-day rule for nursing home coverage.

The CCJR would, in some circumstances, allow a patient to get skilled nursing home care without first spending three days in a hospital.

However, the waiver is only available to skilled nursing facilities that have a score of three stars or higher on the Medicare Nursing Home Compare website, Michel said. It is too complicated for hospitals to form the networks with both nursing homes that are and aren't eligible for the waiver, he said.

In order to get patients to the most appropriate setting as quickly as possible after surgery, hospitals will transfer those patients to skilled nursing facilities eligible for the waiver, Michel said.

Sharing Savings and Losses

Care coordination arrangements between hospitals and post-acute care providers will be varied across the country, the AHA's Kim said. In a broad sense, these arrangements will allow hospitals and the post-acute care providers to share in the savings or the losses the model generates, she said.

Moreover, the networks allow hospitals to spread risk to post-acute care providers, Michel said. The model specifies hospitals are allowed to share up to 50 percent of the risk with defined partners, such as post-acute care providers, he explained.

The arrangements will be fairly common, because they give all providers an incentive to make the model successful, Kim said. She noted doctors and post-acute care providers are a critical piece to making the model successful.

Despite optimism on future care coordination, some say they are not enough getting guidance.

Hospitals and doctor's aren't having conversations about how they are going to integrate care from surgery through recovery, Alexe Page, a San Diego surgeon, told Bloomberg BNA March 31.

These conversations are important because the success of the model will depend on controlling post-acute care costs, she said. Page also is the chairwoman of the health Care Systems Committee at the American Academy of Orthopaedic Surgeons (AAOS).

Stinting on Care?

The medical device industry has its own set of challenges related to the comprehensive joint replacement model.

All of Medicare's bundled payment models have financial incentives to reduce costs, Richard Price, the senior vice president of payment and health-care delivery policy at the Advanced Medical Technology Association (AdvaMed), told Bloomberg BNA March 31.

AdvaMed is concerned the program's financial incentives for hospitals may, in some cases, cause them to stint on care, Price said. In particular, the CCJR's defined episode of care of 90 days may be too short for the consequences of financial incentives to appear to the Medicare program, he said.

The medical devices industry is concerned that the joint replacement model will pressure hospitals to limit the number of devices available for surgeons to use.

Price offered the following example to justify his point: He said orthopedic surgeons not practicing at hospitals participating in the model are more free to choose devices based on a patient's lifestyle and overall health. In the case of a newly enrolled healthy beneficiary who is 65 years old, that may mean a device with more features and a longer life cycle. However, surgeons may select a less durable device for a sedentary beneficiary that is 85 years old, Price said.

Under the comprehensive joint replacement model, hospitals facing pressure to bring down costs may limit the number of devices surgeons are able to implant into patients, Price said. He said some AdvaMed member companies have experienced hospitals making these sorts of “dramatic changes” in the Bundled Payments for Care Improvement Initiative (BPCI), another Medicare program that seeks to link payments for the multiple services that beneficiaries receive during an episode of care.

Hospital industry groups and the AAOS separately rejected claims the model would lead to health-care stinting.

Kim said there are many orthopedic devices on the market and they're typically very costly. However, the value offered by each device is unknown, she said. Part of a hospital's job is to evaluate which devices offer the most value, which will save Medicare money, she added.

Charles Kahn, the president and chief executive officer of the Federation of American Hospitals, a trade group representing for-profit facilities, was more blunt. He told Bloomberg March 31 that the hospital industry has always had deep concerns about the device industry's pricing.

Moreover, past Medicare demo programs, such as the Acute Care Episode Demonstration, showed that savings come from persuading doctors to purchase a narrower band of devices, Kahn said.

The AAMC has been heavily involved with the BPCI model and hasn't seen evidence to support claims that hospitals stinted on care to save money, Walradt said.

Patient Impact

Epstein Becker's Yeung noted, however, there are concerns the CJR could negatively affect some patients. In particular, the model could spur hospitals to avoid treating higher-risk patients, she said.

If some hospitals choose to not treat riskier patients, that could financially hurt those facilities in the same metropolitan statistical area that continue to see those patients, Epstein Becker & Green attorney Lesley Yeung said.

If some hospitals choose to not treat riskier patients, that could financially hurt those facilities in the same metropolitan statistical area that continue to see those patients, Yeung said. Hospitals that opt not to treat riskier patients would drive down the regional price for hip and knee replacements, which could make it more difficult for hospitals that provide hip and knee replacements for riskier patients to meet the target price, she explained.

The Future

The joint care model may change the focus of device companies a bit, Price said. There is interest among AdvaMed's member companies to develop products and services that assist hospitals in managing post-acute care, he said, citing examples of opportunities to manufacture devices that will be used for telehealth and remote-patient monitoring.

Device companies realize payment models like the CJR are the future, Yeung told Bloomberg BNA. Going forward, device makers will need to better articulate what value their products offer patients, she said.

As for Medicare, the comprehensive joint replacement model isn't the end of the program's flirtation with bundled payments, Avalere's Bentley said. Instead, he argued it should been seen as an opening salvo.

The program's structure, which requires a hospital's participation, may represent a policy change for the CMS that it could apply to future demonstration projects, Kahn said. In the past, the CMS allowed providers to volunteer for payment programs it was testing.

In addition, Bentley predicted the CMS may replicate the joint replacement program as a model for similar bundling programs in the future. “I would put money on CMS expanding this beyond” hip and knee replacements to include cardiovascular procedures and other treatments, Bentley said.

To contact the reporter on this story: Michael D. Williamson in Washington at

To contact the editor responsible for this story: Brian Broderick at

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