Bundled Payments: Final Hip and Knee Rule

On November 16, CMS issued the final rule for bundled payment demonstration, lower extremity, effective April 1, 2016.  A single payment, made to a qualifying hospital in one of 67 regions/MSAs covers all aspects of the hospital care, the surgery, and any post-discharge, post-acute stay components through 90 days (from initial hospitalization). The payment exclusions include unrelated hospital and Part B costs, unrelated acute and chronic DRGs and drugs outside the episode (clotting factors, etc.).  The original proposal known as CCJR (Comprehensive Care for Joint Replacement) included 75 regions/MSAs.  The final rule whittled the total to 67 excluding regions such as Colorado Springs, Richmond, VA and Las Vegas.

The CJR (eliminate “care”) is the adjunct or next logical progression from the BPCI (Bundled Payment for Care Improvement) project. The BPCI is voluntary.  CMS has foretold policy watchers and providers that this initiative was forthcoming and while comments to the  proposed rule were deep, CMS was determined to move forward.  The sole major concession was a 3 month delay in implementation (April 1 v. January 1).  Among the concerns expressed were;

  • Impact likelihood on home care (negative) as the home health value based purchasing model comes on-line January 2016.  Concern across the industry about adjustment and preparation time given that the two program implementation dates are fundamentally, side-by-side.
  • Lack of preparation time and specifics in the final rule regarding payment.
  • Lack of fraud and abuse clarifications in the rule.  CMS has acknowledged a need to publish guidance and waivers for providers, specifically around physician self-referral and kickbacks (incentives shared between participating Medicare providers in a coordinated care program violate Medicare anti-kickback provisions on a prima facie basis). CMS has provided waivers before to facilitate ACO operation and formation.

The core of the  demonstration program is to clearly, create a model for shared risk and shared savings between providers, targeted at common care events that span acute and post-acute stays/utilization. The fee for service average for hospitalization and recovery ranges from $16,000 to $33,000 (excluding medical/physician care). CMS is targeting $343 million in savings over the 5 year program life.

In order to achieve the targeted savings, the program has some unique twists or elements that are different from the typical fee-for-service model.

  • The three-day/three inpatient overnight rule for coverage in a post-acute environment is waived.  Patients can be admitted or not, surgery performed, and discharged as care and conditions warrant.
  • For SNFs to participate, their star ratings must be no less than 3 stars on the CMS Compare website.  This is already an issue in certain markets where few facilities meet the criteria.
  • The target price for an episode is a blend of historical and regional pricing, discounted by 2%.  If the actual spend is less than the target price, a reconciliation or incentive payment is due PROVIDED, the hospital has met or exceeded (30th percentile nationally in years 1-3, 40th percentile thereafter) the HCAHPS (patient satisfaction measures), hip and knee readmissions and hip and knee complications measures. Any over-spend or failure to meet quality measures equals no reconciliation payment.  Reconciliation payments are effectively the recoup (partial) of the imputed discount to the target price.

The takeaway for post-acute providers is simple, especially as it relates to the thematic shift this demonstration project is foreshadowing: get lean, get good, and get partners. I wrote about the “new era” a few months ago on this site: http://wp.me/ptUlY-iE .  The fee-for-service trend and the Medicare maximization game (highest RUG, longest stay, etc.) is ending.  I have lectured and written for years before this rule was ever finalized that quality is the number one element that SNFs and HHAs must understand, embrace and demonstrate if they wish to thrive and survive.  The CJR demonstrates it via the “star rating” requirement for SNFs. Facilities that haven’t paid attention, are not up to par, will risk being left out.  Improving your star rating is not quick nor is there a gimmick to employ to change the rating or an appeal process available.

In a soon to follow post, I will address the go-forward implications and strategies for post-acute providers, principally SNFs and HHAs, with respect to the CJR.



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