On November 16, 2015, CMS released its final rule to establish a Medicare Comprehensive Care for Joint Replacement (CJR) model that will test whether bundled payments to acute care hospitals for lower extremity joint replacement surgery (LEJR) episodes of care will reduce Medicare expenditures while preserving or enhancing the quality of care for Medicare. CMS estimates that this initiative – which will be mandatory for most hospitals operating in selected geographical areas –will include about 23% of all LEJR episodes nationally and will result in approximately $343 million in net Medicare savings over five years.

The advance version of the final rule is lengthy (more than 1000 pages) and complex. The basic framework of the program aligns with the program specifications set forth in CMS’s July 14, 2015 proposed rule. CMS did, however, push back the start date for the initiative; the regulations, while effective on January 15, 2016, are applicable when the first model performance period begins on April 1, 2016. Our preliminary observations regarding key features of the final rule and notable changes from the proposed rule include the following:

  • CMS is testing the model in 67 metropolitan statistical areas (MSAs), compared to 75 MSAs in the proposed rule. While the model is generally mandatory for hospitals in the selected MSAs, certain hospitals are excluded from the program, including those actively participating in specified models of the CMS Bundled Payments for Care Improvement (BPCI).
  • Eligible beneficiaries who receive care at a CJR hospital will automatically be included in the model, but they will have freedom to choose their doctors and post-acute care (PAC) providers.
  • LEJR episodes begin with admission to an acute care hospital for an LEJR procedure that is assigned to MS DRG 469 (Major joint replacement or reattachment of lower extremity with Major Complications or Comorbidities (MCC)) or MS-DRG 470 (Major joint replacement or reattachment of lower extremity without MCC). While these cases are often described as total knee or total hip replacement, a number of other procedures are captured by those MS-DRGs, including ankle replacement; lower leg, ankle, and thigh reattachment; and hip resurfacing procedures.
  • CMS will provide a bundled payment to hospitals in selected geographic areas for LEJR episodes, covering all services provided during the inpatient admission through 90 days post-discharge. Each episode will include the LEJR procedure, inpatient stay, and all related care covered under Medicare Parts A and B within the 90 days after discharge, including hospital care, PAC services, and physician services.
  • CMS claims the CJR model will further the goal of paying for value rather than volume because it will promote the alignment of financial and other incentive for all health care providers caring for a beneficiary during an LEJR episode. However, under the program, it is the hospital that will be held accountable for spending during the episode of care.
  • The bundled payment to the hospital will be paid retrospectively through a reconciliation process; hospitals and other providers and suppliers will continue to submit claims and receive payment via the usual Medicare fee-for-service (FFS) payment systems.
  • A participant hospital will receive a “reconciliation payment” if its actual episode payments (combined Medicare Part A and B claims payments for services furnished to the beneficiary during the episode) are below the target price for the episode and certain quality thresholds are met.  Beginning with the second performance year, a hospital will be required to repay Medicare for a portion of spending that exceeds the target price (with limits on upward and downward adjustment).
  • CMS is finalizing its proposal to designate the inpatient prospective payment system (IPPS) hospital as the “episode initiator” and financially responsible for episode cost, notwithstanding numerous requests by commenters to broaden the eligible entities to allow PAC providers, physicians, and certain other non-provider entities to manage the episode of care for beneficiaries.
  • CMS is adopting a variety of revisions to its rules regarding financial arrangements between hospitals and “collaborators” furnishing care to beneficiaries in CJR episodes, including a requirement that hospitals include in CJR collaborator agreements the methodology to be used to determine gainsharing payments, which must be based at least in part on quality criteria and may not be based on directly on the volume or value of referrals or business otherwise generated.
  • CMS is testing the CJR model from April 1, 2016 through December 31, 2020. The first year of the model will begin April 1, 2016 and have a performance period of 9 months; all other performance years of the model will begin January 1 and have a performance period of 12 months.
  • CMS is also adamant that the CJR model is not a mandatory expansion of the BPCI and thus it does not address comments on how BPCI awardees would transition into the CJR model or other related BPCI comments.
  • According to the CMS Fact Sheet accompanying the rule, patients will continue to choose their doctor, hospital, skilled nursing facility, home health agency, and other provider, but under the CJR model, their providers have incentives to better coordinate their care. The goal of the program is that “[f]rom surgery to recovery, patients can receive more comprehensive, coordinated care from their providers focusing on the most appropriate options for their recovery and rehabilitative care.”
  • According to CMS, most commenters expressed overall support for the CJR model.

The Office of Inspector General (OIG) and CMS also jointly announced waivers of certain specified fraud and abuse laws for specified arrangements involving CJR model participants.

The final rule will have significant implications for Medicare payment to participating hospitals and the parameters for relationships between hospitals and other providers that may furnish care to beneficiaries under the model. We are currently preparing a client alert that will provide additional details and analysis regarding the final rule. The final rule is scheduled for publication in the Federal Register on November 24, 2015.