CMS wants to require hospitals to participate in bundling demo

For the first time, the Obama administration is proposing to require hospitals to participate in a Medicare demonstration of an alternative payment model, a recognition that the voluntary approach isn't going to achieve the rapid shift it seeks away from fee-for-service.

Last week, the CMS identified 75 geographic areas, including Los Angeles and New York City, it plans to include in a mandatory test of bundled payments for hip and knee replacements, starting Jan. 1, 2016. More than 800 hospitals would be subject to the rule. Critical-access hospitals would be excluded.

Hospitals would continue to get paid for their services under Medicare's fee-for-service system. At the end of the year, however, there would be a bundled-payment reconciliation based on a hospital's quality and cost performance. The facility either would receive an additional payment or be required to repay Medicare for a portion of care episode costs. Hospitals would not be at risk in the first year.

The CMS said the program would give hospitals an incentive to work with physicians and post-acute providers to improve care coordination and reduce avoidable hospitalizations and complications. It would include quality measures for complications, readmissions and patient experience.

“We're doing this because we believe there's an opportunity to improve care for Medicare beneficiaries who are undergoing hip and knee replacements,” said Dr. Patrick Conway, deputy CMS administrator for innovation and quality.

Two prominent advocates of bundled payment applauded the announcement but urged the CMS to go further. Bundles should be used for spine surgery and other procedures, and the orthopedic bundles should be “the standard method of payment nationwide,” Dr. Ezekiel Emanuel, chairman of the department of medical ethics and health policy at the University of Pennsylvania, and Topher Spiro, vice president for health policy at the Center for American Progress, said in a written statement.

But Premier, the hospital purchasing, consulting and performance improvement company, said rolling out mandatory bundled payment was “too much, too fast.” Senior Vice President Blair Childs said a voluntary, national program would be better.

The American Hospital Association said it “looks forward to working with CMS to ensure the proposed rule meets the needs of our patients and individual communities.”

The CMS' mandatory bundling initiative could pose a challenge for hospitals that haven't made the necessary investments in data infrastructure or care coordination, said Brian Fuller, a vice president with consulting firm Avalere Health.

Hip and knee replacements are among the most common procedures that Medicare beneficiaries receive but prices vary sharply. The average Medicare payment for surgery, hospitalization and recovery ranges from $16,500 to $33,000, the CMS said.

The demonstration would be administered by the CMS Innovation Center and would run for five years. The CMS estimates that the new bundled-payment test would cover about 25% of the hip and knee replacements that Medicare pays for.

The program would put about $2.2 billion in Medicare spending on the new bundles in 2016; that figure would grow to $2.7 billion in 2020. The agency projects the model would yield $153 million in net savings during its five-year run.

In 2014, about 430,000 Medicare beneficiaries had discharges for lower-extremity joint replacements, costing Medicare more than $7 billion in the hospitalizations alone.

Hip and knee replacements are included in Medicare's voluntary Bundled Payments for Care Improvement initiative. But the CMS has found that certain types of hospitals aren't signing up. The new program, the agency said, would capture hospitals with a variety of utilization patterns and other characteristics.

The alternative payment initiative demonstrates that the Obama administration is serious about rapidly moving away from the fee-for-service model and that it recognizes voluntary efforts aren't enough, Fuller said.

Under the proposal, the payment bundle would include hospital admission and end 90 days after discharge. The hospitals would bear financial risk for the procedure, the inpatient stay and all care related to the patient's recovery. The geographic areas chosen for the program range from major urban markets to smaller ones such as Flint, Mich.

In a recent Wall Street Journal op-ed, Emanuel and Spiro argued that efforts to expand accountable care organizations cannot be deployed as readily as bundles.

An early test of bundles from the Medicare Acute Care Episode Demonstration found the model saved Medicare $319 per episode during a three-year program, with the largest savings from orthopedics. But the CMS has acknowledged a lack of published data from its Bundled Payments for Care Improvement Initiative.

Comments on the proposal are due Sept. 8.