Hospitals Transition to Controversial New 'Bundled' Medicare Payment Model

April 1, 2016

An orthopedic surgeon at NYU Langone Medical Center recently had an epiphany.

For 25 years, he had taken an X-ray of his patients following surgery. That's what he'd been taught to do. But he came to realize the X-rays weren't really affecting any clinical decisions.

So, he wondered, why was he doing them?

Re-thinking what had become rote was part of a larger effort that began in 2013 when the medical center signed up for the Bundled Payment Care Initiative, a Medicare payment model that pays a set price for hip or knee replacement surgeries as well as up to 90 days of rehab. The idea is that Medicare pays one price for a "bundle" of services, providing an incentive for the hospitals to become more efficient and to coordinate more effectively with other providers.

On Friday the Centers for Medicare and Medicaid Services is going to begin testing this idea in dozens of hospitals across New York and nearly 800 across the nation as the Obama administration transitions to a compulsory bundled care payment plan.

The overhaul, known as the comprehensive care for joint replacement model, or CJR, is part of Medicare’s goal to have 50 percent of all payments made by alternate models by 2018.

Gary Kalkut, a professor of population health at NYU Langone, told the story about the surgeon as an example of rethinking what had been standard processes, a small one to be sure, but indicative of larger changes.

Perhaps the most consequential was where patients go after discharge.

“There were a lot of patients who had [joint] replacements [and] went to a facility-based rehab course for a period of time after discharge,” Kalkut said. “That’s expensive, the outcomes are good, but we asked ourselves the question, could we have similar outcomes if we had home-based or ambulatory physical therapy and rehabilitation?”

So NYU Langone had its patients rehab at home. The result — the average cost for inpatient rehabilitation dropped from $6,228 to $742, and the average cost of the episode of care decreased from $34,249 to $27,541.

“What [bundled payments require] is thoughtful looking at what you’re doing, what your processes are, and involving not only the doctor but the rest of the staff in the hospital,” Kalkut said. “I think a lot of places can do that, but it does require that kind of coordination across different disciplines and different sites, and that’s not easy.”

Northwell Health has seen similar success during its three years in the voluntary program.

There has been a 20 percent reduction in readmissions at Huntington Hospital, which is sending three times the number of patients home after surgery as it did before, and a 40 percent reduction in the 30-day readmission rate at Lenox Hill Hospital.

“The discharge from the hospital is not the end of the medical journey for the patient but marks the beginning of the next phase of recovery,” Zenobia Brown of Lenox Hill said in a press release. “Ensuring that each phase starts at the right location and intensity of care is critical to the best outcomes for patients — and often that location is home.”

The new Medicare plan is estimated to save $343 million over the next five years, but the move has been controversial, with many hospital executives feeling they are at risk of losing revenue.

In the first year, hospitals can share in any savings achieved, but in the second year of the program, hospitals will be responsible for eating any costs above the pre-established Medicare benchmark.

“I’m not sure why hospitals became the focal point,” said David Alge, the senior vice president of community and population health at New York-Presbyterian. “It’s all really aimed at reducing post-acute utilization, so why this is the path that CMS has chosen has been asked from the start.”

Alge says that, at least at New York-Presbyterian, not much will change for patients during their clinical hospital stay. Instead, the focus of the new model is on what happens once patients leave the hospital and whether they go to inpatient rehab, an outpatient facility, or receive care at home, something that hospitals haven’t had to worry about in the past.

“There’s no denying that all the risk … has been placed on the hospital,” Alge said. “If it’s all placed on one party, there’s detriment in that.”

At the same time, New York-Presbyterian is taking the overhaul seriously because its team believes that these alternative payments are the wave of the future.

“Everybody anticipated that while this is a pilot, this will be the way CMS does business nationally,” he said.

Other hospitals across the country, however, might not be as prepared.

A survey released March 3 found that more than half of orthopedic practices required to make the April 1 transition were not fully prepared, and 12 percent of those practices surveyed didn’t intend to have the program fully in place until next year.

Citing provider concerns, U.S. Reps. Tom Price, a Republican, and David Scott, a Democrat, both of Georgia, proposed a bill to delay the implementation of CJR until 2018. The bill, proposed March 23, did not manage to delay the implementation date, as the House has been on recess since March 24 and will convene again April 11.

Kulkut, on the other hand, is hopeful about the new payment model.

"What Medicare [is doing] about CJR to me is the most definitive example of their seriousness about moving into different payment mechanisms," he said. "When you have a bundle, you have to come together and decide what is, what really matters in the care of the patient and how best to do it ... You can really do a lot with this.”


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