The Centers for Medicare & Medicaid Services (“CMS”) issued its Final Rule on Nov. 16 for the Comprehensive Care for Joint Replacement (“CJR”) model, which mandates that CMS pay providers a bundled payment per episode of care for a Medicare beneficiary undergoing a hip or knee replacement, also referred to as lower extremity joint replacement or LEJR. This marks the first mandated episode-based bundled payment by CMS; all other episode-based bundled payments programs (e.g., Bundled Payment for Care Improvement, or BPCI, initiatives) are voluntary with regard to provider participation. The CJR model will require hospitals in 67 markets to participate in the program initially. A list of the participant hospitals in the selected markets is available here.

CMS created this five-year payment initiative to address the widely varying cost and quality of hip and knee replacements across providers who provide this high-cost, high-utilization medical procedure. CMS has also implemented quality of care measurements for hospitals with the goal of increasing positive outcomes while encouraging value. By focusing on episodes of care, the CJR aims to increase collaboration between hospitals, physicians, and post-acute care providers to improve care from the initial hospitalization through the patient’s recovery.

Payments Based on Episodes of Care

Under the Final Rule, an episode of care begins with the admission of a Medicare patient to a participating acute care hospital (referred to as an anchor hospital) who is ultimately discharged under MS-DRG 469 or MS-DRG 470 (major joint replacement or reattachment of lower extremity with major complications or comorbidities; major joint replacement or reattachment of lower extremity without major complications or comorbidities, respectively). The episode of care is deemed to end 90 days post-discharge. Items and services within in LEJR episodes include all care related to the episode with a discharge of MS-DRG 469 or 470, with certain exceptions.

As noted above, the CJR model will initially run for five performance years, beginning April 1, 2016, and ending Dec. 31, 2020. Throughout the CJR model’s performance years, CMS will continue to pay for all LEJR-related care on a fee-for-service basis. At the end of each performance year, CMS will assess a hospital’s expenditures per episode of care in comparison to its episode target price and determine the amount of any reconciliation or repayment. If the hospital’s spending per episode is under the Medicare target price, the hospital may receive an additional reconciliation payment from Medicare. Conversely, spending in excess of the target price may require the hospital to repay some funds to CMS. Hospital repayments are waived in the model’s first performance year. Certain discount factors may apply to the reconciliation payments made by CMS to providers, and such payments may also be adjusted based on certain hospital quality scores as well. Over the course of the five performance years, CMS expects the CJR model to result in savings to Medicare of approximately $353 million.

What This Means for Providers Involved in LEJR Procedures

Hip and knee replacements are one of the most common inpatient procedures for Medicare beneficiaries, costing more than $7 billion for hospitalization alone in 2014. Hospitals, physicians and post-acute care providers involved in LEJR procedures in the 67 markets with mandatory hospital participation in the CJR model should be aware of the rules and requirements of the Final Rule and should consider its nuances and how they could impact their delivery of care to beneficiaries. Other providers should also keep abreast of new payment model proposals from CMS and begin preparing for more episode-based reimbursement schemes in other healthcare services with relatively standardized treatment protocols but with widely varying costs of delivery across providers. As CMS continues to test various bundled payment initiatives to improve both cost and quality of care, providers may expect to see the CJR model expanded to all markets should the initial five year period prove successful.