By 2019, Medicare's bundled payment model for hip and knee replacements could prove financially painful for hospitals with sicker patients. But if the CMS risk-adjusts for medical complexity, it could—and should—mitigate those penalties, suggests a study published Wednesday in Health Affairs.
In the study, researchers from the University of Michigan calculated hypothetical rewards and penalties for hospitals in Michigan, along the lines of what Medicare would do in its Comprehensive Joint Replacement Program. They found that as the complexity of a hospital's patient population rose, so did the penalties under the new bundled payment model.
“This is obviously a simulation, but I think the policy implications are that the program as is—and with future programs—can create a financial incentive for hospitals to reduce access to medically complex patients,” said Chad Ellimoottil, the lead researcher and an assistant professor in the Department of Urology and the Institute for Healthcare Policy and Innovation at the University of Michigan in Ann Arbor.
Every time a hospital's patient complexity increased by one standard deviation, it incurred a penalty of $827 per episode, the researchers' calculations showed. But when they applied a risk-adjustment model to those payments, some hospitals stood to get back as much as $114,000 per year.
Risk-adjustment is a controversial aspect of most, if not all, of the alternative payment and quality reporting programs that CMS is rolling out, like the Hospital Readmissions Reduction Program or star ratings for hospitals. But its bundled payments for joint replacement are unique in one way.
The mandatory program rolled out in April across 800 hospitals in 67 geographic areas. In it, as is typical in bundled payment models, participating hospitals are paid a set price for all the care involved in a hip or knee replacement. If they contain costs within that amount, they keep the savings. If they don't, they foot the bill.
How CMS determines that target price, however, is unusual.
Through 2018, it is calculated using a blend of regional and hospital specific-data. For the first two years of the program, 2016 and 2017, it will be based on two-thirds hospital-specific data and one-third on regional data. In year three, it'll be the inverse: two-thirds regional, one-third hospital-specific. Starting in 2019, however, it'll be tied solely to regional data.
The point of gravitating toward regional data is to smooth out the differences in pricing that can result from variations in how hospitals practice and use services like post-acute care, CMS has explained. The agency has also said that target prices are risk-adjusted by virtue of the fact that there are actually four different target prices -- two diagnosis-related groups (MS-DRG codes 469 and 470) and fracture versus no fracture -- in the CJR program. Those prices take into account different utilization and cost patterns in a way that, theoretically, sufficiently adjusts for risk.
The findings of Ellimoottil and his colleagues suggested otherwise.
Using Medicare claims of patients who had joint replacement surgery, the researchers calculated patient risk scores based on age, sex, comorbidities, dual eligibility for Medicare and Medicaid and original reason for Medicare eligibility. Then, they aggregated those individual risk scores to develop average risk scores for hospitals, as a proxy for their case mix.
The researchers also calculated hypothetical reconciliation payments—bonuses and penalties—for hospitals in two different scenarios. In the first, target prices were based on historic, hospital-specific data. In the second, they were regional.
The first scenario revealed “no significant association between reconciliation payments” and hospitals' risk scores. But the second scenario revealed “a significant inverse association”—that $827 penalty per standard-deviation increase in a hospital's risk score.
Within hospitals, “patient complexity stays the same year after year, for the most part,” Ellimoottil explained. “When you go to the broader price, then you start to see that hospitals that are treating more complex patients end up losing more in this program than the ones that are treating healthier patients.”
Ellimoottil described himself as excited about CMS's value-based purchasing initiatives and as a fan of regional pricing in general. But as his research showed, even minimal risk-adjusting—for comorbidities, a patient's age, dual eligibility status—was worthwhile in CMS' bundled payment program.
“Is there a way we can make the program more equitable for all hospitals?” Ellimoottil said.”That's the goal.”
