At the Margins

First glance: CMS’s Comprehensive Care for Joint Replacement Final Rule

by Eric Fontana

Yesterday evening, the hotly anticipated Final Rule for Comprehensive Care for Joint Replacement (now known as CJR) hit the web. Due to public comments this rule contained over 600 pages more than the proposed version. We’ll be going through the details with a fine comb over the next few weeks—be sure to join us for our complete review on Dec. 8 at 3 p.m. ET, where we’ll cover the rule in detail, including our recommendations for how providers should respond to the bundling mandate.

Here are some early observations based on our initial look.

CJR kicks off April 1, 2016

While the April 1 delayed start gives providers in the selected markets 4.5 months lead time to prepare, it should be noted that the overall pacing of the program doesn’t change from the proposal. CJR will still run for five years as originally scheduled through Dec. 31, 2020, and there will be no downside risk until Jan. 1, 2017—the start of year 2, also consistent with the earlier proposal.

CMS scales back markets areas for participation

CMS has finalized 67 markets for the program, excluding eight proposed markets that no longer met the eligibility criteria for having insufficient CJR eligible volumes or in markets where the BPCI model predominates for lower extremity joint replacement. (You can download a full list of the included and excluded markets and a full list of affected hospitals.) Nevertheless, the final markets are significant, as they collectively anchor nearly a quarter of all lower extremity joint replacement episodes nationally.

Keep in mind that being in a selected market does not automatically mandate participation. Those hospitals participating in model 1 of BPCI or the risk bearing phase of Model 2 or 4 for lower extremity joint replacements would be excluded from the program.

Where the CJR Participants Are
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Episode definition in line with earlier proposal

Under the rule, participating acute care hospitals will be held financially accountable for Medicare episodic spending efficiency for lower extremity joint replacement patients. Episodes will be triggered by a discharge of MSDRGs 469 or 470 from an “anchor hospital” and include all Medicare spending for Part A and B services that occur within 90 days of discharge.

The model is retrospective, meaning that CMS will continue paying for all care on a fee-for-service basis and assess episodic performance at the end of each year relative to a target price. If the “anchor hospital’s” episodes are under the target price, it will be eligible for a reconciliation payment. If the episodes are over the target price, the hospital will be required to repay the overage to CMS.

What's Included and Excluded in an Episode

What's included and excluded in an episode

Want to see how your organizations scores on HCAHPS and THA TKA Complications? View the Hospital Benchmark Generator

More at risk: Maximum discount factor jumps to 3.0%

Every hospital in CJR will have a unique spending target to hit to avoid paying money back to CMS. This is called the target price: a combination of a hospital’s blended regional and historical episodic spending data with a discount factor applied. In this rule CMS has finalized a more aggressive discount factor, moving from a proposed 2.0% to 3.0%.

In short, this means hospitals will have to make greater reductions to their episodic spending to prevent repayments in later years of the program. However, as outlined below, participants will have a chance to reduce the 3.0% discount to a smaller amount if their quality performance is strong.

Significant changes to quality methodology

The finalized quality methodology is perhaps the most significant departure from the proposed rule. Previously CMS required at least 30th percentile performance on three quality measures to qualify for a reconciliation payment: THA/TKA complications, HCAHPS, and THA/TKA readmissions. Public feedback disagreed with this approach, calling the 30th percentile threshold arbitrary and dismissing the methodology as a poor indicator of overall quality.

CMS relented and has finalized an alternative approach: a composite score that provides significant financial incentive to be better on quality. Hospitals have the opportunity to slash their episodic discount in half if they can achieve high levels of quality performance—for example, from 3.0% to 1.5% in years 4 and 5.

The composite methodology contains elements reminiscent of the scoring approach in the hospital value based purchasing program—assigning credit for achievement and improvement on THA/TKA Complications and HCAHPS. CMS has dropped the readmissions measure altogether but will provide credit for organizations that voluntarily submit the patient reported outcomes (PRO) measure.

Based on the composite, hospitals would be given one of four grades: “Excellent”, “Good”, “Acceptable” or “Below Acceptable.” Excellent performers would see the benefit of an easier episodic target, while hospitals at the other end of the quality spectrum will see a hefty 3.0% discount.

We’ll take a deeper dive on the nuts and bolts of the quality scoring methodology in our webconference, but below we’ve provided some important initial details about the relative contribution of each measure to the overall quality score and the discount implications of quality performance.

Bundled payments

Take advantage of the slower ramp up to risk

Providers should use the softer terms of the program in years 1 and 2 to prepare before CJR gets significantly tougher in year 3. CMS clearly recognize providers will need some lead time and have provided several methodological mechanisms that will help limit large financial losses right off the bat. For example, CMS provides limited downside in the first two years—with no repayment requirement in year 1 irrespective of spending performance and a lower discount percentage (0.5%-2.0% depending on quality performance) in year 2.

Second, episodic target prices (per the image below) in years 1-2 will include a greater portion of an organization’s own historical pricing, providing the advantage of competing against your own performance rather than quickly jumping into full blown regional benchmarking.

Last, CMS lowered the “stop-loss” amounts, effectively reducing the repayments required when episodic spending exceeds the target price in years 2 and 3. These were dropped from 10% (proposed) to 5% in 2016 and from 20% (proposed) to 10% in 2017.

CMS Finalized Target Pricing by Year

CMS finalized target pricing by year

Wacky math: CMS savings estimate jumps substantially

Despite the smaller number of markets finalized for inclusion, CMS now estimates the program will save $343 million over five years. Those of you who joined us for our review of the proposed rule will note this is more than double the previous estimate of $153 million. It appears CMS omitted some hospitals in their prior analysis that significantly changes the financial expectations. The savings will be heavily backloaded as CMS ramps up to the eventual 3% target price from year 3 onwards, along with a shift from hospital specific to regional pricing benchmarks.

CMS estimates the savings breakdown like this:

CMS admits these estimates contain a significant amount of uncertainty—they could be higher or lower depending on spending variation, changes in utilization, and the impact of the newly finalized repayment caps. Nevertheless, the savings are far more substantial than previously expected.

CMS will provide data, but you’ll have to request it

It’s critical for CJR participants to commence submitting requests to CMS for data. CMS has stated it will provide either aggregated or (beneficiary identifiable) claims level detail—in a similar manner as with MSSP and the Pioneer ACO model—to help participants understand their lower extremity joint replacement episodic performance relative to their regional market. Organizations that submit now can expect to receive three years of baseline data before the April 1, 2016 start date.

Broader implications for the landscape overall

While hospital providers will bear the ultimate financial responsibility under CJR, to be successful, they’ll need to cultivate relationships with other providers, whether it be orthopedic surgeons, post-acute, or primary care partners. CMS has finalized the gainsharing requirements that govern how financial transactions between providers can be made and which types of entities, or “collaborators” that an acute care facility may have financial relationships with.

We’ll be reading this section carefully, but CMS appears to have finalized that hospitals may collaborate with entities that directly contribute to patient care under the program (such as primary group practices or post-acute care facilities for example), and stipulate that any gainsharing payments must be derived from reconciliation payments or internal cost savings only.

However CMS also noted that financial arrangements between non-Medicare providers and suppliers, such as ACOs or other third parties, are allowed under existing laws, rules, and regulations, outside of the context of the CJR model. As providers scramble across the next 4.5 months to establish partners, we expect to see some creative approaches come into play.

Watch this space for more to come

We’ll continue to study the final rule and highlight implications for stakeholders across the health care industry. If there is anything we can do to be helpful to your organization, please email us at analytics@advisory.com.

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