Medicare Drops Bundle Bomb

On July 9, 2015, CMS (Centers for Medicare and Medicaid Services) proposed a new reimbursement model that will hold hospitals financially accountable for the outcomes of inpatient hip and knee replacements—from surgery through recovery.

The five-year bundled payment model, called the “Comprehensive Care for Joint Replacement (CCJR) Program” will pay 750 hospitals in 75 geographic areas a lump sum for each hip and knee replacement episode starting from hospital admission to 90 days after discharge. At the end of a year, those hospitals will have a chance to earn more money or have some of their payments clawed back by Medicare, depending on patient outcomes.

More on the specific details below.

Value-Based Payments

Medicare is clearly moving full speed ahead with their plan to dump the fee-for-service model in favor of the pay-for-performance payment model. Alan Sager, Ph.D., professor of health policy and management at Boston University, said that “CMS continues to plan for the next decade’s demon: Medicare’s greater reliance on value-based payments resting on PQRS data.”

While some industry analysts and leaders noted what a “bombshell” the shifting of risk is for providers and device makers, no one should be surprised. CMS has telegraphed this move as plainly as the Brits warned the Argentines the navy was slowly sailing across the Atlantic to reclaim the Falkland Islands.

This proposal builds on CMS’ original announcement that by 2020, 100% of all Medicare reimbursements will be based upon value-based care, which basically means thru ACOs (accountable care organizations) and bundled payments for specific episodes of care.

The Bundle Is Here

Richard Rothman, M.D., founder of the Rothman Institute of Philadelphia, urged his provider colleagues to “Capture the Bundle” at the 2014 Annual Meeting of the American Academy of Orthopaedic Surgeons.

CMS is now going to allow the bundle to capture providers starting in January 2016.

Opportunity for Control

Rothman and other surgeon leaders of physician-owned hospitals, like David Jacofsky, M.D., had just formed the National Orthopaedic and Spine Alliance (NOSA), made up of the CORE Institute, the Cleveland Clinic, the Rothman Institute and OrthoCarolina.

NOSA collected episode of care data for 27 procedures and then showed payers the all-in cost of treating their employees and not charge a deductible, not charge co-pay, fly the patient and their family to one of the NOSA sites, put them up in a hotel and fly them back. NOSA showed payers that the total cost of care—whether for the 90 days of treatment or over the following 12 months plus work-time missed—was less expensive than paying for that employee’s health insurance with the average local provider.

The proposed Medicare payment model is also consistent with the private sector, where major employers and leading providers and care systems are moving towards bundled payments for orthopedic services. Large employers like Boeing and Wal-Mart have entered into highly publicized bundle agreements with ACOs to provide hip and knee replacement services for their employees.

Orthopedic Bundles Payments for Dummies

Hoag Orthopedic Institute, Gabrielle White, RN, CASC, told OTW in a May 2014 story titled: “A Survivor’s Guide To Bundling” (Insert Link https://ryortho.com/2014/05/a-survivors-guide-to-bundling/) that when a clinic or physician enters into a bundled payment program with a payer, they are playing the game with the masters of risk management. Providers can’t win in this game unless they know how to manage and reduce their risks.

If you are a provider, to reduce your risk, White says you have to pick high volume and predictable procedures. Like hip and knee replacements, for example. You must also pick the right patients and the right surgeon. The patients need to meet predetermined criteria. The surgeons need to stay within the metrics of a standardized delivery program.

Then, you have to have great data to know what things cost. Only then are you ready to start.

The Pittsburgh Example

Pittsburgh-based UPMC (University of Pittsburgh Medical Center) is ready.

Bundled payments for orthopedic procedures are well under way at the $10 billion integrated health system with 21 hospitals and more than 5, 100 licensed beds. UPMC’s program launched in 2013 with hip and knee surgeries, and was extended to spine surgeries at the beginning of this year.

UPMC is unique because the provider is also the insurer. Through its insurance entity, UPMC Health Plan, UPMC has determined the average cost per procedure and created bundled payments to push physicians to reduce costs.

“We are really trying to change our payment models as much as we can from volume to value and are really trying to transform our network to something that isn’t based on fee-for-service or RVUs (Relative Value Units) anymore, ” Tom Aubel, director of medical payment strategy and policy at UPMC Health Plan, said in a recently published interview.

“If [physicians] come in under the average cost, they can reap that benefit financially. As they are spending less, they are making more. It’s a pretty basic design.”

Winners and Losers

Certainly there will be winners and losers under the bundle.

Since CMS determined through a demonstration project that half of the cost of providing care for joint replacements occurred post-surgery and the bulk of that cost occurring in either acute inpatient rehabilitation units or sub-acute rehab units in skilled nursing facilities (SNFs), such facilities will be pressured as providers search for lower cost alternatives such as home health services.

Vanishing SNFs and “Demand Destruction”

One health care finance expert, David Friend, M.D., MBA predicts that one in four skilled nursing facilities will be shuttered, while medically advanced SNFs will flourish.

Another expert, Deirdre Baggot, Ph.D., reportedly said mandatory bundling will likely trigger “demand destruction in areas such as diagnostic testing, hospital stays, and avoidable readmissions.”

Implant Pricing Pressure and the MAKO Effect

Needham & Company analyst Mike Matson thinks that since CCJR would allow gainsharing, the proposal would increase implant pricing pressure.

“As with prior bundled payment programs, CCJR allows hospitals to establish gainsharing, which allows the hospitals to share either internal cost savings and/or the CCJR reconciliation payments with surgeons for up to 50% above their Physician Fee Schedule payments. With gainsharing, we think hospitals would be able to reduce implant costs by consolidating vendors, since they would now have the ability to incentivize surgeons to switch implant brands, ” said Matson.

However, Matson says he also believes that CCJR quality incentives could drive more hospitals to adopt Stryker Corporation’s MAKO robotics system.

Pushback and Delay?

He predicts that with less than six months for hospitals to prepare for CCJR, the hospital industry will put up a fight that could potential cause the CCJR program to be delayed.

Blair Childs, senior vice president of public affairs of Premier Inc., a group-purchasing organization for hospitals, reportedly said the proposed rule, “is too much, too fast.” He says a voluntary, national program would ensure that only providers who are ready to take on this challenge enter the program and avoid unintended consequences.

Inside the CCJR Program

By 2016, CMS expects to pay for about 25% of all hip and knee replacement surgeries in the U.S.

Medicare currently spends about $7 billion for those surgeries, with expenditure variations from $16, 500 to $33, 000 depending on geographic locations. While some of the variance in costs is due to geographic differences in price, other variance is due to what providers charge.

In addition, the rate of complications like infections or implant failures after surgery can be more than three times higher at some facilities than others, increasing the chances that the patient may be readmitted to the hospital.

By setting a fixed rate, CMS expects to save $150 million over the five-year life of the initiative.

Carrots and Sticks

Here’s how the program will work and how the money will flow.

Through the proposed model, providers would continue to be paid under existing Medicare payment systems. However, the hospital where the hip or knee replacement takes place would be held accountable for the cost of care from the time of the surgery through 90 days after discharge.

Depending on the hospital’s quality and cost performance during the episode, the hospital may receive an additional payment or be required to repay Medicare for a portion of costs.

The “True-Up:” Moment

Under the model, CMS will provide target prices for the entire 90-day care episode prior to the start of each year which would generally include a 2% discount over expected spending. During the year, all providers are paid under the existing Medicare payment system. There is then a “true-up” at year-end where hospitals with spending below the target price receive the difference from CMS and hospitals with spending above the target price return the difference to CMS.

“By focusing on episodes of care, rather than a piecemeal system, hospitals and physicians have an incentive to work together to deliver more effective and efficient care. This model will incentivize providing patients with the right care the first time and finding better ways to help them recover successfully. It will reward providers and doctors for helping patients get and stay healthy, ” said Health and Human Services Secretary Sylvia M. Burwell in the July 9 announcement.

Review Proposal Here

The proposal is available at https://www.federalregister.gov/public-inspection and can be viewed at https://www.federalregister.gov starting July 14, 2015. The deadline to submit comments is September 8, 2015.

Additional information can be found at: http://innovation.cms.gov/initiatives/ccjr/.