It's official: Mandatory bundled payments are coming. Here's what you need to know.

CMS on Monday finalized the first mandatory bundled payment program for Medicare fee-for-service payments, the Comprehensive Care for Joint Replacement (CJR) model.

Hip and knee replacements are among the most commonly performed inpatient surgeries for Medicare beneficiaries. According to CMS, there were more than 400,000 inpatient knee and hip replacements covered by Medicare in 2013, accounting for $7 billion in hospitalization costs.

The agency notes that joint replacement care—including hospitalization, surgery, and recovery— can cost $16,500 to $33,000, depending on the region. In addition, the quality of the procedures varies significantly: complication rates can be more than three times higher at some hospitals than at others.

Final rule details

Video: What are bundled payments?

Under the final rule, hospitals in 67 designated metropolitan areas—including locations like Miami and New York City—will be accountable for the quality and costs of care for an entire hip and knee replacement surgery episode of care, from the time of the surgery through 90 days after discharge.

Nearly all hospitals in the designated areas are required to participate, according to CMS.

Hospitals that meet certain benchmarks for quality and cost measures will receive a bonus payment. Starting in year two of the program, hospitals can be penalized and have to repay Medicare for a portion of the spending above a set target.

The final rule sets CJR's start date to April 1, 2016, a delay from the Jan. 1, 2016, start date under the proposed rule. The proposed rule also would have applied to 75 metro areas, rather than 67.

Comments, reaction

HHS Secretary Sylvia Mathews Burwell said in a statement, "By focusing on episodes of care, rather than a piecemeal system, we provide hospitals and physicians an incentive to work together to deliver the best care possible to patients."

American Hospital Association President and CEO Rick Pollack in a statement praised several changes CMS made from the proposed rule. However he added that AHA remains "concerned that hospitals will still be pressed to put in place the processes and procedures necessary for the program" by the April 1, 2016 start date (Alonso-Zaldivar, AP/Sacramento Bee, 11/16; Sullivan, The Hill, 11/16; Dickson, Modern Healthcare, 11/16; HHS release, 11/16; CMS fact sheet, 11/16; AHA statement, 11/16).