The deteriorating hips and knees of the nation's seniors were an obvious target for Medicare's first mandatory test of an alternative payment model for hospitals. But joint replacement is not the only possible target, and hospitals are now on notice that Medicare will move ahead if they don't do it on their own.
Starting Jan. 1, nearly 800 hospitals in 75 markets across the country would be required under the proposal to accept bundled payments covering all services for hip and knee replacement procedures, starting with hospital admission and extending for 90 days. They either would have to lower their costs or absorb the losses, which will kick in after the first year of the five-year demonstration. The program is projected to save Medicare $153 million over its duration.
Experts described the mandatory bundling initiative as bold but not surprising. Rather, the announcement is the latest and clearest signal from the administration that the nation's hospitals and doctors increasingly will be paid under contracts that put them at risk for financial losses if they don't meet cost and quality targets.
“This should not come as a big shock to anyone,” said Francois de Brantes, executive director of the Health Care Incentives Improvement Institute.
That's because Obama administration officials in January pledged to move more than $100 billion in annual Medicare spending into new contracts that change how hospitals, doctors and others are paid no later than 2018.
The administration is seeking alternatives to traditional Medicare's fee-for-service system, which rewards volume rather than outcomes. The goal is to replace those volume incentives with rewards for more cost-effectively managing costs and outcomes.