Medicare's New Bundled Payment For Joint Replacement May Penalize Hospitals That Treat Medically Complex Patients

Area of Science:

• Health economics
• Healthcare policy

Background:

• The Centers for Medicare and Medicaid Services (CMS) introduced the Comprehensive Care for Joint Replacement (CJR) bundled payment program to reduce payment variations for joint replacement procedures.
• Stakeholders express concern that the CJR program may unfairly penalize hospitals by not adequately accounting for patient medical complexity.

Purpose of the Study:

• To evaluate the impact of patient medical complexity on hospital reconciliation payments within the CJR program.
• To assess the potential financial effects of incorporating risk adjustment into the CJR program's payment methodology.

Main Methods:

• Utilized Medicare claims data for lower extremity joint replacement procedures in Michigan (2011-2013).
• Applied payment methodologies similar to those intended for CMS reconciliation payments.
• Calculated the difference in reconciliation payments with and without risk adjustment based on patient complexity.

Main Results:

• Reconciliation payments decreased by $827 per episode for each standard deviation increase in patient complexity.
• Risk adjustment could potentially increase annual reconciliation payments for some hospitals by up to $114,184.

Conclusions:

• The current CJR program design may disadvantage hospitals treating more complex patients.
• Implementing risk adjustment is recommended for the CJR program and future CMS bundled payment initiatives to ensure equitable reimbursement.