There could be a lot of unintended consequences from Medicare’s new bundled payment system, unless risk adjustment is added, according to researchers from the University of Michigan Institute for Healthcare Policy and Innovation.

They report that under the Comprehensive Care for Joint Replacement (CJR) system implemented in April — and scheduled for expansion over the next three years — hospitals that treat sicker, older patients, or those who have more complex health problems may lose hundreds of thousands of dollars in reduced CMS payments.

The reason is because these patients require services and care that are more complicated than cost targets mandated by the program.

“Patient complexity matters,” Dr. Chandy Ellimoottil, lead researcher, told HCB News. “Rolling out a one-size-fits-all model could really hurt hospitals that are trying to appropriately treat patients. We don't want to incentivize reducing access to care for Medicare patients who are medically complex."

Bundled payment program in deployment
The Centers for Medicare and Medicaid Services (CMS) recently implemented the CJR bundled payment program, designed to reduce episode payment variation for hip and knee replacements.

The CJR program pays hospitals a preset “bundled” amount for the full range of care provided to the joint replacement patient instead of paying particular charges for each element of care, such as surgery, hospital stay, and postoperative care.

If the spending actually incurred for a full treatment is above a targeted amount, providers could experience reduced CMS payments; if spending is below the target “reconciliation payments” increase.

So far the bundled payment program only applies to hip and knee replacements at 800 hospitals in a limited number of metro areas. But supporters, including former members of the George W. Bush administration, posit that expansion of this model to cover treatment of other conditions at more hospitals will be “an important step beyond CMS payment reforms that have been implemented so far.”

Former Secretary of Health and Human Services, Michael O. Leavitt, argued along with former CMS administrators in The Hill that “hospitals in these expanded episode payment proposals will face substantial ‘downside risk’ - with both more pressure and more payoff to implement more substantial changes in care than under fee-for-service [plans].”

This means, they explained, “more investment in steps to improve the continuum of care and preventing readmissions and other complications, through better coordination of care, better discharge planning and use of post-acute services, and other innovative approaches to deliver care more efficiently.”

However, according to their paper published in the September issue of Health Affairs, the team from the University of Michigan Institute for Healthcare Policy and Innovation identified concerns that the bundled system “unintentionally penalizes hospitals because it lacks a mechanism (such as risk adjustment) to sufficiently account for patients' medical complexity.”

New system penalizes providers for treating complex cases
Led by Ellimoottil, a urologist whose research extends to bundled payments for many types of care, the study simulated rewards and penalties according to what Medicare would do in the CJR Program.

"Using Medicare claims for patients in Michigan who underwent lower extremity joint replacement in the period 2011-13, we applied payment methods analogous to those CMS intends to use in determining annual bonuses or penalties (reconciliation payments) to hospitals,” they wrote.

Based on these calculations, the article went on, “we found that reconciliation payments were reduced by $827 per episode for each standard-deviation increase in a hospital's patient complexity. Moreover, we found that risk adjustment could increase reconciliation payments to some hospitals by as much as $114,184 annually.”

That amount “may be a drop in the bucket in a large hospital's budget,” Ellimoottil acknowledges. “But if mandatory bundled payments using the CJR formula get rolled out in other types of care, the numbers could become very large.”

In a related development, Becker's Spine Review reported that the Academy of Orthopaedic Surgeons (AAOS) submitted a letter last week to the House Budget Committee hearing on the Center for Medicare & Medicaid Innovation that expressed concern that “this program financially penalizes physicians who perform joint replacement surgeries on disadvantaged patients, since these patients will likely require increased levels of care and longer rehabilitation.”

Risk adjustment element can be added within three year schedule
To avoid such problems, the U. of M. study recommended that an appropriate risk adjustment component be introduced into the mandatory bundled payment system.

Adjusting a hospital's performance based on how old or sick the patient is already used in many other Medicare programs that assess health care quality and spending, the group asserted, and it could still be incorporated into the new system before it is fully deployed.

Leavitt and the former Bush administrators also recognized the possibility for the CMS to “refine its bundled payment proposal before it is implemented, and then through further improvements down the road,” particularly with reference to “quality and spending benchmarks need[ed] to account more thoroughly for differences across hospitals in patient risk, so that hospitals are not penalized for caring for the most complex patients.”

Ellimoottil and his study “found that changing the program to account for patient complexity would dampen this impact."

"While we believe that the Comprehensive Care for Joint Replacement program could serve as an important step in that direction, the inclusion of risk adjustment based on CMS-HCC risk scores would make the program more equitable for, and acceptable to, all participants, and would limit the potential unintended consequences for Medicare beneficiaries with multiple comorbid conditions," they concluded.