Ready or not, hospitals face mandatory bundling for joint replacement
The deteriorating hips and knees of the nation’s seniors were an obvious target for Medicare’s first mandatory test of an alternative payment model for hospitals. But joint replacement is not the only possible target, and hospitals are now on notice that Medicare will move ahead if they don’t do it on their own.
Starting Jan. 1, nearly 800 hospitals in 75 markets across the country would be required under the proposal to accept bundled payments covering all services for hip and knee replacement procedures, starting with hospital admission and extending for 90 days. They either would have to lower their costs or absorb the losses, which will kick in after the first year of the five-year demonstration. The program is projected to save Medicare $153 million over its duration.
Experts described the mandatory bundling initiative as bold but not surprising. Rather, the announcement is the latest and clearest signal from the administration that the nation’s hospitals and doctors increasingly will be paid under contracts that put them at risk for financial losses if they don’t meet cost and quality targets.
“This should not come as a big shock to anyone,” said Francois de Brantes, executive director of the Health Care Incentives Improvement Institute.
That’s because Obama administration officials in January pledged to move more than $100 billion in annual Medicare spending into new contracts that change how hospitals, doctors and others are paid no later than 2018.
The administration is seeking alternatives to traditional Medicare’s fee-for-service system, which rewards volume rather than outcomes. The goal is to replace those volume incentives with rewards for more costeffectively managing costs and outcomes.
The Affordable Care Act gave HHS’ secretary authority, without congressional approval, to expand demonstrations of alternative payment and delivery models if they are shown to reduce spending growth without reducing quality, or if they improve patient care without boosting spending. So HHS can now roll out successful models throughout Medicare on a mandatory basis. Indeed, some experts have been urging the administration to roll out demonstrations that prove successful throughout Medicare as a way to strengthen the ACA’s cost-saving and quality improvement results.
“We know that this will produce savings, so the hope is that it can be expanded on a mandatory basis nationwide within two years,” said Topher Spiro, vice president for health policy at the Center for American Progress.
The CMS’ new proposal would bundle all care for joint replacement into one payment per patient, including the hospital stay and everything that follows for 90 days. Joint replacements cost Medicare $7 billion last year. But that amount does not include spending for care after patients leave the hospital, which varies widely and makes up nearly half of Medicare’s total spending on new hips and knees, according to research by the Advisory Board Co.
The program would require hospitals to coordinate care and manage costs across surgery teams, primary care, rehabilitation and skilled nursing, home care and physical therapy, said Dr. Thomas Graf, chief medical officer at Geisinger Health System, Danville, Pa., which has developed 17 bundles of care.
Hospitals also must determine which patients would be best suited for which setting. That involves new protocols and data analysis and the ability to identify efficient, highquality providers in the community.
Medicare has set an ambitious schedule. “It’s a little frightening,” Graf said. “It’s a significant amount of work.”
Hospitals that cannot manage care to hold spending within the bundled amount would have to repay Medicare the difference after the first year. The gains or losses hospitals see depend on how quickly and successfully they can coordinate all the care patients need during the procedure and in the 90 days thereafter.
Medicare is seeking comment on the proposal through September. “It’s highly likely that it will go forward,” Graf said. He expects more CMS-mandatory alternative payment programs to follow as part of an evolution to capitated payment. “This would be the first of many. CMS put
Attempts to develop other bundles have met with mixed success.
their stake in the ground.”
The CMS sought comment in April on expansion of its Bundled Payment for Care Improvement Initiative demonstration, which includes 48 episodes of care under bundled payments, including joint replacement, coronary artery bypass grafts, and treatment for chronic conditions such as diabetes and congestive heart failure.
Medicare has previously experimented with bundled payment for joint replacement and cardiac care. The CMS saw savings, though they were modest. One three-year initiative included 28 cardiac services and another eight orthopedic procedures. It shaved $319 per person off spending.
The private sector also has introduced joint replacement bundled payments and developed others for pregnancy, heart conditions and some cancers. Horizon Blue Cross and Blue Shield of New Jersey has increased the services under bundles to 10 over the past two years and expects to pay for 11,000 bundled episodes of care this year. Overall, bundles have produced favorable results without any “slam dunk,” said Peter Hussey, director of the health services delivery system program for RAND Corp.
Broader expansion of bundled payment may prove difficult, however. Attempts to develop other bundles have met with mixed success. The Children’s High-Risk Asthma Bundled Payment demonstration by Massachusetts’ Medicaid program didn’t get off the ground despite years of work. “What we learned is that it’s really hard,” said Katharine London, a principal at the Center for Health Law and Economics at the University of Massachusetts.
Other private-sector efforts have seen more success. Dr. Constantine Mantz, chief medical officer for 21st Century Oncology, said complication rates and toxicity among Humana patients have remained low since the 2012 start of an oncology bundled payment for radiation therapy. He said it has produced “meaningful savings.”
Experts said hips and knees are a good place for the CMS to start on mandatory bundling. “Joint replacement is a particularly good candidate for bundled payments,” said Peter Huckfeldt, an assistant professor of health policy and management at the University of Minnesota. Wide variation in spending after patients leave the hospital offers a clear target for savings.
Hospitals could curb spending with efforts to identify the most cost-effective post-acute providers and settings. Huckfeldt cited a June 2014 Medicare Payment Advisory Commission report that found rehabilitation facilities typically cost 20% to 40% more than skilled-nursing facilities.
Managing costs for joint replacement largely boils down to sending patients to the most appropriate, lowest-cost post-acute setting, said de Brantes, whose organization manages a bundled payment model now being used by some state Medicaid programs and commercial insurers. That’s not difficult, but providers rarely do it without a financial incentive. Under bundles, “you start paying attention,” he said.
Bundled payment for joint replacement has been more widely tested than bundles in other clinical areas. The threeyear Medicare Acute-Care Demonstration Project, which began in 2009, reduced Medicare spending for joint replacement by $1.1 million across five hospitals. Four national employers have saved “several thousand dollars per case” under a bundled payment initiative for joint replacements launched in January 2014, said David Lansky, CEO of the Pacific Business Group on Health.
Anthem Blue Cross and Blue Shield of Wisconsin has seen significant cost savings from a joint replacement bundle launched in 2014 and the insurer is considering expansion into other orthopedic services, said Dr. Michael Jaeger, the health plan’s medical director.
Yet not all bundling programs for joint replacements have succeeded. Health plans and hospitals dropped out of the Integrated Healthcare Associations’ private-sector joint replacement bundle effort after organizers lost patience and wrangled over key features.
That underscores the challenge ahead for hospitals given the clear interest from administration officials in accelerating alternative payment methods. Hospitals will have to race to identify the factors driving higher costs for joint replacements and get those costs down while paying close attention to outcomes. “They’re going to have to move quickly,” Hussey said. “I’m sure it doesn’t feel like enough time.”
Rob Lazerow, a healthcare practice manager at the Advisory Board Co., said the CMS’ new bundling program comes as a bit of a surprise. “I don’t think providers expected to see mandatory anytime soon.”