Hospital Responses to Incentives in Episode-Based Payment for Joint Surgery: A Controlled Population-Based Study

Medicare's Comprehensive Care for Joint Replacement (CJR) model, initiated in 2016, is a national episode-based payment model for lower-extremity joint replacement (LEJR). Metropolitan statistical areas (MSAs) were randomly assigned to participation. In the third year of the program, Medicare made hospital participation voluntary in half of the MSAs and enabled LEJRs for knees to be performed in the outpatient setting without being subject to episode-based payment. How these changes affected program savings is unclear.

To estimate savings from the CJR program over time and assess how responses by hospitals to changing incentives were associated with those savings.

This controlled population-based study used Medicare claims data from January 1, 2014, to December 31, 2019, to analyze the spending for beneficiaries who received LEJR in 171 MSAs randomized to CJR vs typical payment. One-quarter of beneficiaries before and after the April 1, 2016, start date were excluded as a 6-month washout period (January 1 to June 30, 2016) to allow time in the evaluation period for hospitals to respond to the program rules.

The main outcomes were episode spending and, starting in year 3 of the program, the hospitals' decision to no longer participate in CJR and perform LEJRs in the outpatient setting.

Data from 1 087 177 patients (mean [SD] age, 74.4 [8.4] years; 692 604 women [63.7%]; 980 635 non-Hispanic White patients [90.2%]) were analyzed. Over the first 4 years of CJR, 321 038 LEJR episodes were performed at 702 CJR hospitals, and 456 792 episodes were performed at 826 control hospitals. From the second to the fourth year of the program, savings in CJR vs control MSAs diminished from -$976 per LEJR episode (95% CI, -$1340 to -$612) to -$331 (95% CI, -$792 to $130). In MSAs where hospital participation was made voluntary in the third year, more hospitals in the highest quartile of baseline spending dropped out compared with the lowest quartile (56 of 60 [93.3%] vs 29 of 56 [51.8%]). In MSAs where participation remained mandatory, CJR hospitals shifted fewer knee replacements to the outpatient setting in years 3 to 4 than controls (12 571 of 59 182 [21.2%] vs 21 650 of 68 722 [31.5%] of knee LEJRs). In these mandatory MSAs, 75% of the reduction in savings per episode from years 1 to 2 to years 3 to 4 of the program ($455; 95% CI, $137-$722) was attributable to CJR hospitals' decision on which patients would undergo surgery or whether the surgical procedure would occur in the outpatient setting.

This controlled population-based study found that savings observed in the second year of CJR largely dissipated by the fourth year owing to a combination of responses among hospitals to changes in the program. These results suggest a need for caution regarding the design of new alternative payment models.