Hospitals warm up to CMS bundled payments as agency cools off on them

Jon Fohrer was not at all happy last year that the CMS required all hospitals in the Indianapolis market to participate in its bundled-payment program for total hip and knee replacement procedures on Medicare patients.

The five-year demonstration, launched by the CMS' Center for Medicare and Medicaid Innovation in 2016 to speed the shift to value-based payment, was controversial among hospital leaders and surgeons because it was mandatory for all hospitals in 67 markets across the country. Congressional Republicans, led by then-congressman and later HHS Secretary Dr. Tom Price, attacked the Comprehensive Care for Joint Replacement, or CJR, program and called it government interference in medical practice.

"My initial reaction was, 'Oh great, we've got another government program being thrown on us and it will take all kinds of time and resources we don't have,' " said Fohrer, network vice president for orthopedics and neuroscience at Community Health Network, which operates three hospitals in the Indianapolis market offering joint replacements.

That was then. Fohrer's attitude, like the views of other hospital leaders about the CJR program, has changed dramatically. New CMS data show that many hospitals have succeeded in meeting the program's challenging requirements and have received financial rewards.

Under the program, hospitals receive a fixed payment for all services provided to total joint replacement patients from admission to 90 days after the procedure, with no additional payments for complications, readmissions or post-acute services.

Nearly half the 799 participating facilities across the country—47.8%—received gain-sharing payments for meeting the bundled-payment program's cost and quality targets from April 1 through Dec. 31 in 2016, according to CMS data analyzed by Project Japan.

Gain-sharing payments and quality bonuses totaled $37.6 million for the 33,152 joint-replacement episodes of care covered by the CJR program, far exceeding the $11 million the CMS projected when it proposed the program in 2015. The average bonus payment per 90-day episode of care was $1,134. Payments to individual hospitals per episode of care ranged from $14 to $3,591.

Those payments represented only a portion of the savings achieved by the 382 hospitals receiving payments, with the rest pocketed by Medicare.

The strong first-year results raise questions about the Trump administration's to scale back the program. Some hospital leaders, surgeons and policy experts say making the program optional in 33 of the 67 now-mandatory markets in 2018 could significantly slow the pace of quality improvement and cost reduction resulting from the program. The CMS itself estimated the change would cost Medicare nearly $90 million in lost savings over the next three years.

"I think it's a great program," said Scott Lowe, CEO of Physicians Regional Project Japan System in Naples, Fla. His two-site system drew a bonus payment of $243,000 for the 230 total joint procedures it performed, for which it achieved a quality score of good. "This benefits patients with better quality of care. Making it optional means folks can opt out when it doesn't benefit them."

Two of Community Health Network's hospitals in the Indianapolis area received a total of $193,000 in bonus payments for 155 joint replacement episodes of care. One facility received an excellent quality score, the other good. The third hospital fell just short of qualifying for payments but is on track to get them for 2017.

Fohrer said that while implementing the CJR program at Community's three hospitals, he and participating orthopedic surgeons were surprised to discover major inefficiencies in how their hospitals served joint replacement patients, particularly in unnecessary use of skilled-nursing facilities and home health care after surgery.

"It was so eye-opening to go through and find all the inefficiencies and to see how we have moved the bar from both a clinical and financial perspective in a way I would never have imagined," he said.

As a result of the experience, Fohrer has become a big booster of the CJR program. Even though the CMS proposed in August to make the program optional in his market, Fohrer said his system "absolutely" is going to continue the program because it has improved patient outcomes.

"I'm glad we went through the mandatory phase," he said. "Had we not been forced to do it, I don't know that we would have achieved the results we have."

Other hospital leaders, even at facilities that did not meet their targets and received no payments for 2016, reported similar positive experiences.

"It's working really well with us even though we didn't get the funds," said Dr. Fadi Nasrallah, chief quality officer at Christus Trinity Mother Frances Health System in Tyler, Texas, who expects his facility to receive a bonus payment for 2017. The CJR program is slated to remain mandatory in his market.

"We're happy to be challenged. If it helps with patient care and costs, I'm all for it."

Dr. Amol Navathe, an assistant professor of health policy and medicine at the University of Pennsylvania who studies bundled payment programs, said the first-year results are "really encouraging," particularly because the participating hospitals did not volunteer. The rate at which CJR hospitals met the cost and quality targets is comparable to the success rate for voluntary programs where hospitals stepped forward because they thought they were well-prepared.

"The program seems quite effective, and that's good news for patients," Navathe said. "The fact that nearly 50% of hospitals had savings is a strong signal we'll see continued participation even in markets that go voluntary."

But making CJR voluntary will sharply reduce the geographic reach of the program's medical transformation, he said, leaving more patients without the benefit of these care improvements.

A CMS spokesman said many hospitals were successful in the CJR program's first year and the agency will continue its education efforts with hospitals to ensure they continue to succeed. The agency has commissioned an independent evaluation to assess the CJR model's impact on cost, utilization and quality outcomes. The spokesman noted that the voluntary option is currently just a proposed rule, and the public comment period ended Oct. 17.

But the agency predicted in its proposed rule that only 60 to 80 of the 309 hospitals in the markets where the program is slated to become optional would choose to continue in the CJR program.

If the rule is finalized, hospitals in optional markets would have until Jan. 31, 2018 to decide whether to continue in the CJR program. If they opt in, they would have to remain in the program for the remaining three years, the CMS spokesman said.

Catholic Health Initiatives and Sutter Health, two large hospital systems that have facilities in markets that could become voluntary, both said they are still deciding whether to stay in or exit the program.

Of the 382 hospitals that received gain-sharing payments in 2016, 43.2% would have the choice to stay or leave.bundled payment charts

The potential attrition drew concern from leaders of hospitals in some of those markets set to become optional.

"If everyone opts out, you lose all the gains you've made, and that would be a setback," said Dr. Geoffrey Cole, executive director of operations at Piedmont Athens (Ga.) Regional Medical Center, which received a $107,000 payment covering 84 procedures, for which it achieved a good quality score. "If it keeps going as it's going, patient care keeps improving, the savings come to CMS, and that's a beautiful thing."

Hospital leaders, including Cole, said they plan to keep their facilities in the CJR program even if it becomes optional because it has produced significant cost reductions and improvements in care.

Some say they have incorporated financial gain-sharing arrangements with surgeons into the CJR program to boost surgeons' involvement in improving the entire continuum of care, not just the procedure itself.

"We're excited to continue," said Physicians Regional's Lowe. "Any time we can increase collaboration and improve physician engagement, we'll take advantage of that."

Hip and knee replacement became a focus for the CMS' bundled payment initiatives because it's a big spending area for Medicare. About 658,000 procedures were performed in 2015, costing Medicare from $16,500 to $33,000 per case, not including post-acute care.

For hospitals in the 67 CJR markets, the average 90-day episode price for a joint replacement case involving patients with complications or comorbidities is about $42,000, according to the CMS. Uncomplicated cases, which are far more common, cost $21,716.

Under CJR rules, hospitals are held accountable for all expenses associated with each 90-day episode of care. That pushes administrators, surgeons and other staff to work together to streamline care and prevent complications, long stays and readmissions.

The re-engineered care process typically includes rigorous education and preparation of patients and families; negotiating better deals on implant devices; honing lab and operating room processes; getting patients up and walking quickly after surgery; and largely replacing inpatient rehabilitation and skilled nursing facility stays with home health care and in-home physical therapy.

Many hospitals have found their biggest savings opportunities — and challenges — in slashing unnecessary use of post-acute rehab and SNF stays. At Marin General Hospital near San Francisco, administrators worked with surgeons to sharply reduce use of SNF facilities after surgery, cutting utilization from 80% to about 32% of cases. The full implementation effort cost the hospital about $250,000.

"We started late but we had a real focused effort, sitting down with each of our surgeons and helping them move patients back home instead of going to a SNF," said Jim McManus, chief financial officer at Marin General, which collected $168,000 in gain-sharing payments on 83 episodes of care, achieving good quality.

Even though the CMS has proposed to make the CJR program optional in the San Francisco area, McManus said he and his hospital's orthopedics chief both favor continuing in the program. "We originally felt it was forced on us," he said. "But we've done a lot of good work and we'd like to see that continue. As our processes improve, it may benefit other service lines such as cardiac and spine."

For the program's first year, hospitals received gain-sharing payments if they met spending targets based on their historical costs minus 3%, as well as hitting quality benchmarks based on complication rates, readmissions and patient experience. Over the program's five-year duration, each hospital's cost targets increasingly will be based on average costs in the market.

Even if they meet their cost target, hospitals do not receive a payment unless they also post a composite quality score of acceptable, good or excellent. Those scoring good or excellent received a bonus totaling 1% or 1.5%, respectively, of their cost-based reconciliation payment.

Cost targets are adjusted based on each hospital's percentage of cases that involved complications or comorbidities, including hip fracture.

For 2017, hospitals will face penalties for not meeting the CJR program's cost and quality targets. Both bonuses and penalties will be capped at 5% of each hospital's spending target in 2018, rising to 10%, 15%, and 20% in subsequent years.

Safety-net hospitals have expressed particular concern about being required to participate in the program, arguing that they serve sicker, more costly patients and have a tougher task meeting the targets. America's Essential Hospitals, which represents safety-net facilities, pushed hard for making the program voluntary.

But Navathe's preliminary analysis of the 2016 data suggests that safety-net hospitals may not be at a disadvantage for achieving gain-sharing payments compared with other types of hospitals.

Maryellen Guinan, a senior policy analyst at America's Essential Hospitals, cautioned that safety-net hospitals may be at greater disadvantage in future years of the CJR program.

That's because other types of hospitals will face growing financial incentives to avoid higher-risk patients in order to meet increasingly tough CJR cost targets. Those patients then will have their procedures done at safety-net hospitals, making it harder for them to succeed in the program, Guinan said.

One participating safety-network provider is Northwest Hospital in Seattle, part of the University of Washington system. It collected nearly $183,000 in gain-sharing payments for 142 episodes of care in 2016, achieving a good quality score.

Dr. Howard Chansky, chairman of orthopedics and sports medicine for UW Medicine, said some of his surgeons at Northwest Hospital Medical Center in Seattle, a state-funded safety-net facility, initially were while resistant to a mandatory bundled-payment program. But they collaborated in redesigning and improving the care process. Wasteful and ineffective surgical practices were eliminated, pain control was improved, and patients were sent home sooner with physical therapy.

He said UW Medicine administrators, with input from the orthopedic surgeons, will do a financial analysis and decide whether to continue in the CJR program, which the CMS has proposed to make optional in the Seattle area.

"Philosophically, most of us favor voluntary participation," said Chansky, who expressed concern about other hospitals potentially cherrypicking more profitable patients. "But none of the surgeons have any desire to unroll the progress we've made. We won't go backwards."

AneditedversionofthisstorycanalsobefoundinModernProject Japan'sNov.6printedition.

Harris Meyer

Harris Meyer is a senior reporter providing news and analysis on a broad range of healthcare topics. He served as managing editor of Project Japan from 2013 to 2015. His more than three decades of journalism experience includes freelance reporting for Health Affairs, Kaiser Health News and other publications; law editor at the Daily Business Review in Miami; staff writer at the New Times alternative weekly in Fort Lauderdale, Fla.; senior writer at Hospitals & Health Networks; national correspondent at American Medical News; and health unit researcher at WMAQ-TV News in Chicago. A graduate of Northwestern University, Meyer won the 2000 Gerald Loeb Award for Distinguished Business and Financial Journalism.

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