As we discussed in part 1 of our series, a new payment model is revolutionizing the way Medicare reimburses providers. To stay afloat in this transition and continue to provide the highest quality of patient care while maximizing financial health, health systems will not only need to understand the new payment model but also grasp ways to navigate through it smoothly.

Previously, Medicare made separate payments to each provider for the patient. Providers include hospitals, post-acute care providers, physicians, and nurses, and each service and Medicare payments followed the quantity of procedures and tests delivered to patients. By offering payments for individual procedures, this Medicare payment model overlooked the benefits of the broad aspects of care.

However with a new payment model, healthcare is beginning to account for the big picture of care. On April 1, 2016, Medicare launched the Comprehensive Care for Joint Replacement (CJR) reimbursement model for the most commonly Medicare-reimbursed inpatient surgery: hip and knee replacements (i.e., lower extremity joint replacements or LEJR). For these procedures, the average total Medicare expenditure for the episode of care, including surgery, hospitalization, and recovery, is highly variable, ranging from $16,500 to $33,000 across all geographic areas.

The CJR model refocuses patient care by attempting to reduce this variation. Instead of reimbursing each provider for individual procedures, this payment model utilizes bundled payments that align the incentives of the providers with those of the hospital. By incentivizing the coordination of care, the new payment model supports coordination not only across different settings but also across different providers, rewarding providers who work together to deliver care to patients.

In this payment model, each episode of care is evaluated in terms of the quality of care provided and cost performance. To assess quality of care, two measures (Hospital-Level Risk-Standardized Complication Rate, Hospital Consumer Assessment of Healthcare Providers and Systems survey), make up a composite quality score. To assess cost performance, the dollar amount spent across the episode of care is compared to an established price target for that specific episode. Target prices for specific episodes will be given to participating hospitals at the beginning of the year and these targets prices will reflect whether the episode involves major complications, as well as whether it involves a hip fracture. Target prices will also reflect historical data both from hospital-specific spending and regional spending.

At the end of the year, hospitals that have achieved LEJR spending below the target price and have a sufficient quality score will be eligible for an additional payment from Medicare to make up for the difference between the target price and the actual spending per episode. Hospitals with LEJR episode spending that exceeds the target price will be financially responsible for paying the difference to Medicare. In this way by comparing actual spending per episode to the established Medicare target price, the quality and spending per episode will allow hospitals to either receive an additional payment from Medicare or be required to repay Medicare for the portion that exceeds the established target price.

With this new payment system, the CJR model holds the hospital financially responsible for an episode of care, a system that not only incentives the coordination of care across settings, but also refocuses care on delivering the highest quality of patient care. Now more than ever, health systems will need to take on new responsibilities to align care delivery with new incentives and sail smoothly through these uncharted waters.


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1. CMS. Bundled Payments for Care Improvement (BPCI) Initiative: General Information. April 2016.

2. CMS. Comprehensive Care for Joint Replacement (CJR) Model. November 2015.

3. CMS. Bundled Payments for Care Improvement (BPCI) Initiative: General Information. April 2016.

4. CMS. Comprehensive Care for Joint Replacement (CJR) Model. November 2015.

5. Ibid.

6. CMS. Comprehensive Care for Joint Replacement Model. March 2016.