Risk adjustment needed for joint replacement bundled payment model

Medicare’s mandatory bundled payment model for knee and hip replacement will penalize hospitals which take care of complex patients, according to a new study from researchers at the University of Michigan Institute for Healthcare Policy and Innovation.

Published in the journal Health Affairs, the study simulated CMS’s Comprehensive Joint Replacement Program using Medicare claims data for more than 23,000 patients in Michigan who underwent joint replacement procedures between 2011 and 2013. Without risk adjusting for sicker patients, the researchers said reconciliation payments would be reduced by $827 per episode “for each standard-deviation increase in a hospital’s patient complexity.”

If risk adjustment was applied, however, reconciliation payments to some hospitals could be increased by as much $114,000 annually.

“There could be a lot of unintended consequences from this approach unless risk adjustment is added,” said Chandy Ellimoottil, MD, lead author of the study. “In past bundled payment programs, patient complexity didn’t matter because hospital payments have been based on a comparison with the hospital’s own past pricing, which reflects the complexity of the patient population it serves. Now, under this new model of regional comparison, complexity becomes relevant, and risk adjustment is needed.”

Ellimoottil said the risk adjustment model they used is based on the CMS-HHC model, and argued it could be applied even to the current CJR program, which began in April with 800 hospitals in 67 geographic areas participating. For 2016 and 2017, payments will be calculated using two-thirds hospital-specific data and one-third regional price comparison. In 2018, the split between hospital and regional data will be flipped, and in 2019, the payment formula will change to be based solely on regional price comparison.

“Patient complexity matters,” Ellimoottil said. “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.”