CMS and a few private insurers have transitioned to bundled-payment models in recent years to cut costs. A new University of Pennsylvania study found that these models can drive down costs for both Medicare and health systems without compromising quality of care.

The researchers evaluated the cost and quality of care for hip and knee replacements performed between 2008 and 2015 at the Baptist Health System in San Antonio, Texas. In 2008, Medicare was still using the fee-for-service model to reimburse BHS for joint replacements, but in January 2009 that changed.

CMS started a bundled payment model voluntary trial for some common procedures and BHS was one of the participants. Initially Medicare reimbursed the hospitals a single amount for surgical and facility fees but in 2013 the model expanded to also cover 30 days of post-acute care.
They found that the average cost of joint replacement and 30 days of PAC for the 3,738 patients who underwent the surgery and had no significant pre-existing complications dropped from $26,785 in 2008 to $21,208 in 2015. That equated to a reduction of $5,577 or 20.8 percent per patient.

The average cost of an artificial joint decreased by 29 percent per case because evidence-based data was used to engage surgeons and manufacturers. There was also a 27 percent drop in the average cost per case of PAC.

BHS also experienced a 67 percent decrease in extended hospital stays, even though the severity of the patients’ conditions remained the same. The researchers believe that demonstrates that there was a reduction in surgical complications.

In November 2015, CMS issued a final rule that created one bundled payment for total joint replacement to the lower extremities over a 90-day period. Hospitals are not reimbursed beyond the bundled payment for any complications and/or readmission over that time period.

Since April 2016, CMS has mandated a bundled payments system for knee and hip replacement in 800 hospitals across the U.S. The agency has committed to transitioning at least half of its reimbursements to alternative payment models by 2018.

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