Hospitals on the hook for joint replacement costs

Driving the news: Medicare officials last month expanded a pilot program that bundled payments for hip, knee, and ankle replacements — some of the most common surgeries for seniors — to incentivize providers to manage their spending.

• Most hospitals in the country will have to participate.
• The pilot ran from mid-2016 through 2024 in selected regions and generated more than $112 million in its sixth and seventh years.
• The expansion is projected to save $725 million over five years.

How it works: Starting in 2028, Medicare will set spending targets for post-surgical care and other services delivered for 90 days after an operation.

• Hospitals that spend less will get paid the difference. Those that spend more have to pay Medicare back. Quality measures will also affect how much a hospital pays.
• The effort, dubbed CJR-X, marks the Medicare innovation center's first such nationwide test of bundled payments for distinct episodes of care.
• The change "gives more patients the opportunity for a better care experience" by encouraging hospitals to improve care coordination, reduce unnecessary care, and prioritize patient outcomes, said Abe Sutton, director of Medicare's innovation center.

Friction point: Hospitals say that mandating participation is counterproductive, and especially difficult for smaller facilities and those with narrow margins.

• "At a time when policymakers are rightly focused on bringing down health care costs, increasing reliance on mandatory models represents a step in the wrong direction," Charlene MacDonald, CEO of the Federation of American Hospitals, told Axios.
• The way the program is structured will require hospitals to meet progressively lower spending targets over time, added Ashley Thompson, senior vice president for policy at the American Hospital Association.
• "It really risks turning a care improvement model into a permanent payment cut for hospitals," she said.

Participation in the original joint replacement payment experiment was associated with an extra $1.4 million in administrative costs per hospital per year, according to research led by Brown University and published last week in JAMA Health Forum.

• Medicare wrote in the final rule that mandatory participation is an important step in standardizing joint replacement coordination, quality accountability, and spending.

The Federation of American Hospitals suggested in comments a willingness to take the effort to court before Medicare finalized the plan, calling it "an overreach of agency authority." The group said the administration can't impose an indefinite, required payment change.

• The organization did not respond to questions about possible litigation.

Reality check: The initial pilot program proved it could generate savings without compromising quality, so it makes sense that officials would expand it, said Patricia Pelizzari, a principal at actuarial firm Milliman.

• Expanding models that generate promising evidence has been a goal of the innovation center across multiple administrations.
• The center has also been moving toward mandatory participation and financial risk for several years now.

Yes, but: "Running a hospital in America is sort of a game of where do I put my attention," Pelizzari said.

• Hospitals have to decide based on their experience in lower joint procedures whether and how much to invest in preparing for the model, she added.

What we're watching: The new payment system applies to joint replacements done in inpatient and outpatient settings, but not in ambulatory surgical centers.

• Hospitals could wind up shifting more procedures to those centers to still get paid per service delivered, Pelizzari noted.