New Medicare payment rules that started April 1 could affect you as a patient. Medicare’s new bundled-payment initiative for hip and knee replacements and other lower-extremity-joint-replacement surgeries, proposed last July and finalized in November, affects close to 800 hospitals  in 67 randomly chosen US cities

It’s called the Comprehensive Care for Joint Replacement (CJR) model, and its goal, according to the U.S. Department of Health and Human Services (HHS), is to minimize complications and hospital readmissions after these surgeries, which are the most common inpatient surgeries Medicare beneficiaries receive. The CJR model will give hospitals a financial incentive to coordinate patients’ care among their physicians and other healthcare providers that may be involved in the procedures and post-operative care, such as home health agencies and skilled nursing facilities

The Centers for Medicare & Medicaid Services (CMS) expects the program to improve patient outcomes and estimates that it will save taxpayers $343 million over five years. In 2014 Medicare spent more than $7 billion on hospitalizations for more than 400,000 hip- or knee-replacement surgeries, according to HHS.  Each procedure and its recovery costs Medicare between $16,500 and $33,000 on average, depending on the hospital and its location. 

What Are Bundled Payments?

Under a bundled-payment system, insurers reimburse providers a fixed sum for an episode of care, which begins on the date the patient has surgery and ends 90 days after the hospital discharges him or her. By contrast, fee-for-service payments reimburse providers piecemeal for each service patients receive. The concern is that the fee-for-service system rewards the number of services provided, regardless of how effective they are. It creates incentives to increase healthcare spending. 

Medicare has used bundled payments for certain procedures for decades, but only now will it use this system for lower-extremity-joint replacements, and only in select hospitals, as part of the Bundled Payments for Care Improvement (BPCI) initiative. HHS says the CJR model is following the lead of private healthcare providers that have started bundling payments for orthopedic services. 

How the Financial Incentives Will Work

Medicare will still pay providers on a fee-for-service basis as procedures are performed, but it will now look at how much hospitals claim, in total, for all the lower-extremity-joint-replacement surgeries they perform during the year. Hospitals that exceed quality and performance measures based on how their average cost per procedure compares with Medicare’s target price per procedure will receive additional payments from Medicare; if they fall short, they will owe Medicare money. Each hospital’s spending target is different, depending on its historical and regional outlays for hip and knee replacements. The new rules shift the risk for post-surgery complications to hospitals; this is called a “pay-for-performance model.” 

In the program’s first year, hospitals won’t owe Medicare anything if they don’t meet performance standards. Penalties will phase in over the following three years, with a stop-loss limit of 5% in year two (which begins January 1, 2017, not April 1), 10% in year three and 20% in years four and five. There are also stop-gain limits on how much hospitals can benefit, which HHS says will “protect the health of beneficiaries.” The included markets represent a quarter of these surgeries nationwide. 

Risks and Benefits for Patients

If you have a hip- or knee-replacement surgery, you could have complications, such as an infection or an implant failure. You could need additional surgery to correct unusual pain or joint instability. Patients certainly want to avoid the pain, health risks, hassles and additional costs associated with such complications. If the new Medicare payment rules do indeed reduce post-surgical complications, patients will be better off. But we don't yet know what the results will be.

The new program’s financial penalties give hospitals an incentive to send patients home as soon as possible after having hip- or knee-replacement surgery. They also give hospitals an incentive to provide high-quality care that minimizes the risk of patients having problems after surgery. The limits on both penalties and rewards are meant to discourage hospitals from taking shortcuts or providing inadequate care.

Remember that each individual's situation is different. If a patient feels that he or she is being sent home too soon, or is not being provided with sufficient post-operative care, it's important to challenge these decisions. Medicare patients have the right to immediate review by the Beneficiary and Family Centered Care Quality Improvement Organization in your area. Click here for information on how this "fast appeal" process works – you must appeal "no later than the day you're scheduled to be discharged from the hospital," according to the Medicare website. There's also a procedure if you miss the "fast" deadline. In addition, you may want to raise the issue with the hospital's patient advocate.

A three-year study at New York University’s Langone Medical Center, which was part of the government’s pilot program to test the new system, found that bundled payments reduced length-of-stay and readmission rates and therefore costs – to the tune of about $7,000 per procedure – for Medicare patients receiving hip or knee replacements. (For more, see When You Can and Can’t Delay Enrolling in Medicare and How to Avoid Penalties When Postponing Medicare.) As they could before April 1, patients who receive care in areas where the new program is in place are free to choose their doctors and hospitals for lower-extremity-joint-replacement procedures and post-operative care.

The Bottom Line

As part of Medicare’s larger goal of paying providers for quality over quantity, the new payment model for hip- and knee-replacement surgeries that began April 1 will gradually change the way providers are paid. The new program will run through December 31, 2020. At that time we’ll know how effective it was at improving results for patients and saving money, and the government will decide how to proceed. (For more, see The Proposed Medicare Drug Rules and Senior Health.)

Should you worry in the meantime? Probably not, but be sure that you are getting proper care and speak up if you are concerned that you are not.