The Impact of Medicare Bundled Payments: Evidence from a Nationwide Randomized Evaluation for Lower Extremity Joint Replacement

Bundled payments (BP) are a key part of Medicare’s shift away from the traditional fee-for-service (FFS) payment model. We propose to study a nationwide randomized-controlled trial (RCT) of bundled payments for knee and hip replacements that was designed and implemented by CMS and launched in April 2016.
This bundled payment model for lower-extremity joint replacement holds acute care hospitals (ACHs) financially responsible for the spending and quality of an entire episode of care. It targets two types of hospital admissions: major joint replacement or reattachment of lower extremity with and without major complications or comorbidities (MS-DRG 469 and 470). An episode begins with an ACH stay that results in a discharge in one of the two included DRGs, and ends 90 days after ACH discharge. Before each performance year begins, hospitals receive their target prices from CMS, determined by historical hospital and regional episode expenditures and a 3% discount factor to reflect Medicare’s portion of savings from CJR. Hospitals are eligible for reconciliation payment from CMS if they spend less than the target prices for an episode, provided that they met an “acceptable” quality standard. Conversely, they are responsible for paying the difference if they spend more than the target prices.

2016-04-01

2020-12-31

Share of LEJR admissions discharged to institutional Post Acute Care (PAC)

[Time Frame: discharge destination from index LEJR admission]
[Safety Issue: No]
Definition: Institutional Post Acute Care includes SNF, LTCH, and IRF

1. Share of LEJR admissions discharged to any Post Acute Care (PAC)
2. Number of days in Institutional PAC during episode
3. Total covered Medicare payments during episode
4. Total covered Medicare payments for Institutional PAC during episode
5. Total covered Medicare payments for any PAC during episode
6. Total beneficiary payments owed out of pocket during episode

1. Definition: Any PAC includes Institutional Post Acute Care plus home health agency.
2. Definition: number of days in institutional PAC facilities (sum of length of stays in SNF, LTCH and IRF)
3. Definition: Total covered Medicare payments are defined as the total amount of Medicare Part A and part B FFS payments that are included in the bundle. Note that, as defined, total covered Medicare payments are the payments that would be made in the absence of BP (i.e. payments that would occur under FFS Medicare). These are counterfactual for the treatment MSAs. If the data become available, we plan to also look at actual payments made during the episode (which would include any reconciliation payments or repayments to or from hospitals in the treatment MSAs).

We propose to study a randomized-controlled trial (RCT) of bundled payments for knee and hip replacement called Comprehensive Care for Joint Replacement (CJR). The RCT was designed by CMS, launched in April 2016, and is expected to last 5 years. Randomization was conducted at the Metropolitan Statistical Area (MSA) level, with 67 MSAs and about 800 hospitals assigned to the treatment group. The CJR model is a Medicare bundled payment model for lower-extremity joint replacement (LEJR) that holds acute care hospitals (ACHs) financially responsible for the spending and quality of the entire episode of care. The CJR model targets two types of hospital admissions: major joint replacement or reattachment of lower extremity with and without major complications or comorbidities (MS-DRG 469 and 470). An episode begins with an ACH stay that results in a discharge in one of the two included DRGs, and ends 90 days after ACH discharge.

In July 2015, CMS publicly announced its exclusion criteria for eligible MSAs in its proposed rule, and posted the list of 196 eligible MSAs on the CJR website. The exclusion criteria were designed to limit the sample to MSAs with a reasonable volume in the LEJR DRGs and to exclude MSAs with a high take-up of BPCI. CMS also published the randomization procedure (including strata and treatment probabilities within strata), and the resulting 75 treatment MSAs (80 Federal Register 134, 2015). We have verified that we can replicate CMS’s randomization procedure.

Randomization was done by the federal government.

CMS conducted randomization at the MSA level

Yes

196 MSAs

196 eligible MSAs x number of LEJR episodes

75 MSAs assigned to treatment group, 121 control

Importance: Bundled payments are an increasingly common alternative payment model for Medicare, yet there is limited evidence regarding their effectiveness.

Objective: To report interim outcomes from the first year of implementation of a bundled payment model for lower extremity joint replacement (LEJR).

Design, Setting, and Participants: As part of a 5-year, mandatory-participation randomized trial by the Centers for Medicare & Medicaid Services, eligible metropolitan statistical areas (MSAs) were randomized to the Comprehensive Care for Joint Replacement (CJR) bundled payment model for LEJR episodes or to a control group. In the first performance year, hospitals received bonus payments if Medicare spending for LEJR episodes was below the target price and hospitals met quality standards. This interim analysis reports first-year data on LEJR episodes starting April 1, 2016, with data collection through December 31, 2016.

Exposure: Randomization of MSAs into the CJR bundled payment model group (75 assigned; 67 included) or to the control group without the CJR model (121 assigned; 121 included). Instrumental variable analysis was used to evaluate the relationship between inclusion of MSAs in the CJR model and outcomes.

Main Outcomes and Measures: The primary outcome was share of LEJR admissions discharged to institutional postacute care. Secondary outcomes included the number of days in institutional postacute care, discharges to other locations, Medicare spending during the episode (overall and for institutional postacute care), net Medicare spending during the episode, LEJR patient volume and patient case mix, and quality-of-care measures.

Results: Among the 196 MSAs and 1633 hospitals, 131 285 eligible LEJR procedures were performed during the study period (mean volume, 110 LEJR episodes per hospital) among 130 343 patients (mean age, 72.5 [SD, 0.91] years; 65% women; 90% white). The mean percentage of LEJR admissions discharged to institutional postacute care was 33.7% (SD, 11.2%) in the control group and was 2.9 percentage points lower (95% CI, −4.95 to −0.90 percentage points) in the CJR group. Mean Medicare spending for institutional postacute care per LEJR episode was $3871 (SD, $1394) in the control group and was $307 lower (95% CI, −$587 to −$27) in the CJR group. Mean overall Medicare spending per LEJR episode was $22 872 (SD, $3619) in the control group and was $453 lower (95% CI, −$909 to $3) in the CJR group, a statistically nonsignificant difference. None of the other secondary outcomes differed significantly between groups.

Conclusions and Relevance: In this interim analysis of the first year of the CJR bundled payment model for LEJR among Medicare beneficiaries, MSAs covered by CJR, compared with those that were not, had a significantly lower percentage of discharges to institutional postacute care but no significant difference in total Medicare spending per LEJR episode. Further evaluation is needed as the program is more fully implemented.

Trial Registration: ClinicalTrials.gov Identifier: NCT03407885; American Economic Association Registry Identifier: AEARCTR-0002521

Finkelstein A, Ji Y, Mahoney N, Skinner J. Mandatory Medicare Bundled Payment Program for Lower Extremity Joint Replacement and Discharge to Institutional Postacute Care: Interim Analysis of the First Year of a 5-Year Randomized Trial. JAMA. 2018;320(9):892–900. doi:10.1001/jama.2018.12346

https://jamanetwork.com/journals/jama/fullarticle/2698927

Changes in the way health insurers pay healthcare providers may not only directly affect the insurer’s patients but may also affect patients covered by other insurers. We provide evidence of such spillovers in the context of a nationwide Medicare bundled payment reform that was implemented in some areas of the country but not in others, via random assignment. We estimate that the payment reform—which targeted traditional Medicare patients—had effects of similar magnitude on the healthcare experience of nontargeted, privately insured Medicare Advantage patients. We discuss the implications of these findings for estimates of the impact of healthcare payment reforms and more generally for the design of healthcare policy.

Einav L, Finkelstein A, Ji Y, Mahoney N. Randomized trial shows healthcare payment reform has equal-sized spillover effects on patients not targeted by reform. Proc Natl Acad Sci U S A. 2020 Aug 11;117(32):18939-18947. doi: 10.1073/pnas.2004759117. Epub 2020 Jul 27

https://www.pnas.org/doi/abs/10.1073/pnas.2004759117

Government programs are often offered on an optional basis to market participants. We explore the economics of such voluntary regulation in the context of a Medicare payment reform, in which one medical provider receives a single, predetermined payment for a sequence of related healthcare services, instead of separate service-specific payments. This “bundled payment” program was originally implemented as a 5-year randomized trial, with mandatory participation by hospitals assigned to the new payment model; however, after two years, participation was made voluntary for half of these hospitals. Using detailed claim-level data, we document that voluntary participation is more likely for hospitals that can increase revenue without changing behavior (“selection on levels”) and for hospitals that had large changes in behavior when participation was mandatory (“selection on slopes”). To assess outcomes under counterfactual regimes, we estimate a stylized model of responsiveness to and selection into the program. We find that the current voluntary regime generates inefficient transfers to hospitals, and that alternative (feasible) designs could reduce these inefficient transfers and raise welfare. Our analysis highlights key design elements to consider under voluntary regulation.

Einav L, Finkelstein A, Ji Y, Mahoney N. VOLUNTARY REGULATION: EVIDENCE FROM MEDICARE PAYMENT REFORM. Q J Econ. 2022 Feb;137(1):565-618. doi: 10.1093/qje/qjab035. Epub 2021 Sep 20. PMID: 35233120; PMCID: PMC8884469.

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8884469/