On November 16, 2015, the Centers for Medicare & Medicaid Services ("CMS") issued a public inspection copy of the Final Rule related to the mandatory bundled payment program known as the Comprehensive Care for Joint Replacement ("CJR") Model.  The CJR Model is a retrospective bundled payment program for lower extremity joint replacement ("LEJR") procedures performed for certain fee-for-service Medicare beneficiaries and is designed to force hospitals to engage in care redesign efforts with other health care providers involved in LEJR episodes of care.  Also on November 16, CMS and the Office of the Inspector General ("OIG") jointly issued notice of waivers of certain fraud and abuse laws in connection with the CJR Model.  The Final Rule will be published in the Federal Register on November 24, 2015 and contains significant changes from the Proposed Rule CMS issued in July of 2015.

A high-level summary of the Final Rule was provided in our prior Health Law News article.  This Health Law News article is intended to provide a more detailed summary of the Final Rule.

Effective Date.  In response to numerous comments citing concerns that the Proposed Rule allowed hospitals inadequate time to prepare for LEJR bundled payment, CMS delayed the start of the first CJR performance year until April 1, 2016.1 The first CJR performance year ends on December 31, 2016,2 and the remaining four performance years apply to calendar years through 2020.

Data Availability CMS has announced that it will be notifying participating hospitals within the "next few weeks" about the process for obtaining CJR data.  Hospitals can expedite the data notification process by sending an email to CJR@cms.hhs.gov, setting forth the hospital's name, provider number and the names of two hospital employees who will serve as the hospital's principal contacts for the CJR program.  CMS's goal is to have each participating hospital's historical data available by early 2016.  On a quarterly basis after July 1, 2016, each hospital may request from CMS historical beneficiary-level claims data representing care furnished during previous episodes of care for beneficiaries undergoing LEJR procedures at the hospital.  Aggregated ongoing quarterly regional claims data will be available after July 1, 2016.

Participating Hospitals.  The CJR program will be mandatory for Inpatient Prospective Payment System ("IPPS") hospitals located in 67 specified Metropolitan Statistical Areas ("MSAs") unless the hospital is participating in the Bundled Payments for Care Improvement ("BPCI") initiative under BPCI Model 1 or serving as an episode initiator in the risk-bearing period of BPCI Models 2 or 4 for LEJR episodes.  CMS removed eight MSAs from the scope of the CJR Model under the Final Rule.3

Episode of Care.  A CJR episode of care begins with a covered beneficiary's4 admission to a hospital for a LEJR procedure and ends 90 days after the beneficiary's discharge from the anchor hospitalization.  Services included in the CJR episode of care are all Medicare Part A and Part B items and services furnished to a fee-for-service beneficiary discharged with a diagnosis grouped under MS-DRGs 469 or 470 unless expressly excluded by the Final Rule.5

Payment Methodology.

  • Episode Target Price.  Under the CJR program, CMS will continue paying hospitals and other providers and suppliers for services provided to beneficiaries during a CJR episode of care according to the usual Medicare fee-for-service methodology.  For each performance year, CMS will calculate a participant hospital's episode target price for episodes of care anchored by MS-DRG 469 and MS-DRG 470.  In response to commenters' concerns over the considerably higher cost of treating patients with hip fractures, episode target prices for LEJR patients with hip fractures will be risk stratified under the Final Rule.

CMS will communicate the hospital's episode target price before the beginning of each CJR performance year.  The episode target price will be based on a blend of: (i) the participant hospital's historical episode payment, which includes Medicare payments for the Part A and Part B items and services provided in episodes of care for LEJR procedures performed at the hospital during the three prior years; and (ii) the historical episode payment for the region in which the participant hospital is physically located.  In CJR performance years 1 and 2, each hospital's episode target price will be based two-thirds on the hospital's historical episode payment and one-third on the regional historical episode payment.  In performance year 3, the hospital's episode target price will be based one-third on the hospital's historical episode payment and two-thirds on the regional historical episode payment.  In performance years 4 and 5, each hospital's episode target price will be based entirely on the regional historical episode payment.6  A participant hospital's episode target price will also incorporate discount factors to reflect Medicare's portion of reduced expenditures from the CJR model.

  • Net Payment Reconciliation Amount.  For each participant hospital in each performance year, CMS will calculate a Net Payment Reconciliation Amount ("NPRA") for episodes of care anchored by MS-DRG 469 and MS-DRG 470.  The Final Rule describes the calculation of the NPRA as a three-step process, which includes:
    • Step 1: Medicare's actual Part A and Part B payments for all episodes of care attributable to LEJR procedures performed at the hospital during the performance year are aggregated;
    • Step 2: The hospital's episode target price is multiplied by the number of CJR episodes attributable to the hospital during the performance year; and
    • Step 3: The amount determined in Step 1 is subtracted from the amount determined in Step 2.
  • Reconciliation Payments.  If the NPRA for a performance year is a positive number, then the participant hospital may be entitled to a reconciliation payment from Medicare.  In performance years 1 and 2, a participant hospital's reconciliation payment is capped at 5 percent of the amount calculated in Step 2 of the NPRA calculation; available reconciliation payments are capped at 10 percent of the amount calculated in Step 2 of the NPRA calculation in performance year 3 and at 20 percent of the amount calculated in Step 2 of the NPRA calculation in performance years 4 and 5.

In order to receive a reconciliation payment, however, the participating hospital must meet certain quality performance thresholds.  For each performance year, CMS will compute each hospital's composite quality score based on: (i) hospital-level, risk-standardized complication rates following elective primary total hip arthroplasty ("THA") or total knee arthroplasty ("TKA"); (ii) Hospital Consumer Assessment of Healthcare Providers and Systems ("HCAPS") scores; (iii) hospital-specific improvements in quality; and (iv) voluntary submission of patient-reported outcomes and limited risk variable data.  Only hospitals whose composite quality scores fall within excellent, good or acceptable categories (as defined in the Final Rule) will be eligible to receive reconciliation payments.

  • Repayment Amounts.  If a hospital's NPRA is negative, the hospital will be required to make a repayment to Medicare equal to the negative NPRA amount. However, for performance year 1 (April 1, 2016 through December 31, 2016), regardless of whether the NPRA is negative, hospitals will not be required to make any repayment to Medicare.  In performance year 2, any repayment amount will be capped at 5 percent of the amount calculated in Step 2 of the hospital's NPRA calculation; repayment amounts are capped at 10 percent of the amount calculated in Step 2 of the hospital's NPRA calculation for performance year 3 and at 20 percent of the amount calculated in Step 2 of the hospital's NPRA calculation for performance years 4 and 5.7

Quality Measures The Final Rule includes quality measures that are used for public reporting and, as discussed above, to determine whether a participant hospital is eligible for reconciliation payments or quality incentive payments.8  Data pertaining to HCAPS scores and to hospital-level risk-standardization complication rates following elective THA or TKA will be publicly reported each year on the CMS website.  CMS will not publicly report voluntarily submitted patient-reported outcomes or limited risk variable data but will indicate on its website whether a hospital has voluntarily submitted such data.

Beneficiary Choice and Notification.  While beneficiaries are not permitted to opt out of the CJR model, all existing beneficiary protections, including patient choice of providers and services, remain available for beneficiaries involved in CJR episodes of care.  Participating hospitals must provide each CJR beneficiary with a written notice that includes such things as a description of the hospital's CJR program, a list of providers and suppliers with which the hospital collaborates under the CJR program and a statement that all beneficiary protections remain available to the beneficiary.  As part of the discharge planning process, participant hospitals must continue to provide beneficiaries with a list of post-acute providers available in the geographic area; however, under the Final Rule, participant hospitals are expressly permitted to identify certain post-acute providers as "preferred."  Finally, in response to numerous comments on the Proposed Rule, CMS eliminated from the Final Rule a provision that would have allowed individual CJR beneficiaries to opt out of data sharing.

Financial Arrangements Between Hospitals and Other Providers.  

  • Sharing Arrangements in General.  The Final Rule authorizes hospitals to enter into written agreements with CJR collaborators9to organize and memorialize the terms of care redesign and alignment of financial incentives under the CJR model.  Such CJR sharing arrangements must not include any payment methodologies or other factors that take into account the volume or value of referrals or other business generated among the parties (or non-party practice collaboration agents as described below).  Sharing arrangements may not induce any provider involved in a CJR episode of care to reduce or limit medically necessary services and must not restrict the ability of any provider to make decisions (including selection of devices, supplies and treatment) in the best interests of patients.  In addition, hospitals that enter into sharing arrangements must update their compliance programs to include oversight of such arrangements and must adopt written policies for selecting CJR collaborators.  The hospital's governing body must have ultimate responsibility for overseeing the CJR program, including the hospital's arrangements with collaborators.
  • Gainsharing Payments.  Through the use of written CJR sharing agreements, a participating hospital may pay collaborators gainsharing amounts consisting of: (i) a portion of the reconciliation payment the hospital receives from CMS under the CJR program; and/or (ii) a portion of the hospital's internal cost savings attributable to care redesign under the CJR program.  The Final Rule imposes numerous requirements that must be included in agreements involving gainsharing payments such as: (i) plans for care redesign; (ii) the specific methodology for verifying internal cost savings; (iii) the purpose and scope of the gainsharing arrangement; (iv) the financial or economic terms of the gainsharing arrangement; (v) a description of how success will be measured; and (vi) the CJR collaborator's establishment of a compliance program.  Gainsharing payments may be made to a collaborator no more frequently than once per calendar year and must be made by electronic funds transfer ("EFT").

Under the Final Rule, all CJR collaborators that receive gainsharing payments must contribute to the hospital's CJR care redesign efforts, meet quality criteria directly related to CJR episodes of care and (with the exception of physician group practices) directly furnish a billable service to a CJR beneficiary during an episode of care for the applicable performance year.  Physician group practice ("PGP") collaborators that receive CJR gainsharing payments must (among other things) have billed for an item or service during an episode of care.  Gainsharing payments received by a PGP may be shared only with individual physician or non-physician practitioner ("NPP") members of the PGP (referred to in the Final Rule as "practice collaboration agents") who furnished a service to a CJR beneficiary.  PGP distributions of CJR gainsharing payments are referred to in the Final Rule as "distribution payments" and must be made by EFT pursuant to a written distribution agreement signed by both the PGP and the practice collaboration agent.  Total distribution payments made by a PGP to a practice collaboration agent for a calendar year may not exceed 50 percent of the total Medicare-approved fee schedule amounts paid by Medicare for services furnished by the practice collaboration agent to the hospital's CJR beneficiaries.  The total amount of distribution payments made by any PGP collaborator must not exceed the amount of the gainsharing payment the PGP receives from the hospital.

  • Alignment Payments.  The Final Rule imposes similar requirements on sharing agreements that provide for alignment payments, which are defined as payments from a CJR collaborator to a hospital made solely for the purpose of sharing the hospital's responsibility for repayments to Medicare in CJR performance years 2 through 5.  No alignment payments may be collected by a hospital unless it has a CJR repayment obligation to Medicare, and the aggregate amount of all alignment payments received by a hospital in any calendar year must not exceed 50 percent of the repayment amount owed by the hospital to Medicare.  The aggregate amount of all alignment payments from any one CJR collaborator to a hospital may not exceed 25 percent of the hospital's CJR repayment obligation.  Alignment payments may be made at intervals agreed upon by the parties and must be made by EFT.

Reimbursement Waivers.  

  • Waiver of "Incident To" Direct Supervision Requirement.  Under the Final Rule, CMS waives the direct supervision requirement to allow "incident to" billing for services furnished in the beneficiary's home during the post-hospital discharge period of the CJR episode of care.10  The waiver is available for up to nine visits and applies only to services furnished by clinical staff (such as registered nurses) under the general supervision of a physician or NPP.  Further, the waiver applies only for home visits provided to CJR beneficiaries who do not qualify for home health services under the Medicare program.
  • Waiver of Global Surgery Billing Rules.  In conjunction with the waiver for "incident to" billing, the Final Rule waives certain global surgery period billing requirements to permit separate billing for up to nine post-operative visits provided by the surgeon's clinical staff during the episode of care.  Like the waiver for "incident to" billing, this waiver applies only to visits in the beneficiary's home or place of residence and only for visits provided to beneficiaries who do not qualify for home health services under the Medicare program.
  • Telehealth Waivers.  The Final Rule waives certain geographic requirements11 for coverage of telehealth services provided during the CJR episode of care.  First, the Final Rule waives the "geographic site" requirement for services furnished via telehealth during the episode of care.  The waiver of this geographic site requirement allows beneficiaries located in any region to receive telehealth services related to the CJR episode, so long as other requirements for telehealth coverage are met.  Additionally, the Final Rule waives the "originating site" requirement for telehealth visits that originate in the beneficiary's home if those services may be furnished via telehealth under other existing regulations.
  • Skilled Nursing Facility ("SNF") 3-Day Rule Waiver.  The Final Rule waives the SNF 3-day rule for all CJR episodes in performance years 2 through 5 but only if the admitting SNF has an overall rating of three stars or better on the Five-Star Quality Rating System for SNFs. CMS will identify qualified SNFs for each calendar quarter based on a review of the most recent rolling 12 months of overall star ratings on the Nursing Home Compare website; in order to be considered "qualified" for purposes of this waiver, a SNF must have an overall rating of three stars or better for at least 7 of the 12 preceding months. CMS will make a list of qualified SNFs publicly available in advance of each calendar quarter.

Patient Engagement Incentives.  The Final Rule and the proposed fraud and abuse waiver for patient engagement incentives ("PEI Waiver") allow hospitals to provide Medicare beneficiaries with certain items or services that promote engagement of the beneficiary in management of the beneficiary's care.  The PEI Waiver protects only in-kind incentives; provision of cash, gift cards, coupons or other cash equivalents are not protected by the PEI Waiver.

Under the Final Rule and the PEI Waiver, beneficiary incentives must be provided by the participating hospital (or an agent thereof)12and be reasonably connected to medical care provided to a beneficiary.  The incentive must either be a preventive care item or service or advance a clinical goal of the CJR program.13  The incentive cannot be tied to the receipt of items or services outside the episode of care or to the receipt of items or services from a particular provider.  The availability of the incentive must not be advertised or promoted; however, beneficiaries may be made aware of the availability of the items or services at the time the beneficiary could reasonably benefit from them.  Participant hospitals must maintain documentation of any beneficiary incentive items and services that exceed $25 in retail value.  Items or services involving technology must be the minimum necessary to advance a CJR clinical goal and may not exceed $1,000 in retail value for any one beneficiary in any one episode.  Items involving technology exceeding $100 in retail value must remain the property of the participant hospital and be retrieved from the beneficiary at the end of the CJR episode.  Participant hospitals must also document retrieval attempts and date of retrieval; however, documented, diligent, good faith attempts to retrieve items of technology will be deemed to meet the retrieval requirement.  Waivers of beneficiary cost-sharing amounts such as copayments and deductibles are not protected by the PEI Waiver.

Fraud and Abuse Waivers.  In addition to the PEI Waiver, CMS and OIG on November 16, 2015 jointly issued notice of Stark Law and Anti-Kickback Statute waivers applicable to: (i) gainsharing and alignment payments under sharing arrangements between participating hospitals and CJR collaborators; and (ii) distribution payments from a PGP to a practice collaboration agent.  These CJR payment waivers ("Payment Waivers") apply only to arrangements implemented under the CJR model and for the most part protect only those gainsharing, alignment and distribution payments that strictly comply with the requirements of the Final Rule. Significantly, both Payment Waivers prohibit the participant hospital or PGP from adding conditions, limitations or restrictions to sharing or distribution arrangements other than those required or permitted by the Final Rule or the applicable Payment Waiver.  According to CMS and OIG, "the design of the waivers is premised on the expectation that the requirements of the Final Rule will mitigate risks of fraud and abuse."  Aside from meeting applicable waiver conditions, no special action (such as submission of a waiver application) is required for an arrangement to be covered by the Payment or PEI Waivers.

Practical Takeaways and Next Steps.  Hospitals subject to mandatory participation in CJR under the Proposed Rule should have already begun assessing their readiness to participate in bundled payment for LEJR.  These efforts likely included identifying key physician stakeholders and post-acute providers, necessary care redesign efforts and available quality measurement tools; developing beneficiary education materials and engagement efforts; analyzing past expenditures to estimate target pricing; and evaluating the information technology infrastructure necessary to succeed under the program outlined by the Proposed Rule.

In addition to continuing all of these efforts with an eye towards the April 1, 2016 date for the beginning of CJR performance year 1, hospitals subject to the CJR program under the Final Rule should send an email to CJR@CMS.hhs.gov, notifying CMS of the hospital's name, provider number and the names of two hospital employees who will serve as the hospital's principal contacts for the CJR program and should begin preparing their requests for historical pricing and beneficiary-level claims data for submission to CMS.  Hospitals that have not already done so should begin preparing standard agreements for use with various CJR collaborators, being careful to ensure that such agreements contain each of the many elements required by the Final Rule, including descriptions of the quality criteria used to select the collaborators, and how the collaborators will contribute to the hospital's care redesign efforts.  In addition, hospitals that plan to enter into sharing arrangements must update their compliance programs to include oversight of such arrangements and adopt written policies for selecting CJR collaborators.  Finally, hospitals should begin preparing to meet the requirement for governing body responsibility for the overall operation of the CJR program, including the hospital's arrangements with collaborators.