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Nuts and Bolts of Orthopedic Bundled Payments

Jan 26, 2016

The orthopedic bundled payment initiatives begin in less than two months. Some providers are working hard to prepare for this new payment reform while others are hardly aware of its existence.

Our first article, published on February 2, 2016, included six key points related to the orthopedic bundled payment initiative. In this article we will explore the “nuts and bolts” of this Medicare initiative.

  1. What providers, conditions, and services will be impacted.
  2. The time frame for patient episodes, as well as Medicare measurement of outcomes, payments, and settle-up reconciliation.
  3. The financial and quality metrics that will be used to determine payments.
  4. Why providers that are not in the affected geographic areas should still pay attention.

Let’s get started:

1. The provider most directly impacted by the orthopedic bundled payment initiatives are hospitals within the 67 geographic areas identified by Medicare. Because hospitals will be held accountable through payment incentives, they will need to build effective processes with physicians and post-acute providers to reduce overall cost and improve quality. Physicians and post-acute providers will not be directly impacted through Medicare payment incentives or the payment system. They will, however, be impacted by changing referral patterns, changes in the types of services needed by patients and promoted by hospitals, and increased requirements for coordinated care with affected hospitals. Physicians and postacute providers may also find acute care providers developing and providing financial relationships and incentives with physicians and post-acute providers to promote positive process changes. Hospitals will be held “financially accountable” for the cost and quality of care for episodes of care that begin with an admission to their hospital of a beneficiary who is ultimately discharged under MS-DRG 469 (Major joint replacement or reattachment of lower extremity with major complications or comorbidities) or MS-DRG 470 (Major joint replacement or reattachment of lower extremity without major complications or comorbidities). Medicare will measure the cost and quality of services provided for the episode of care. An episode begins at admission and ends 90 days post-discharge. The episode includes virtually all related items and services paid under Medicare Parts A and B for all Medicare fee-for-service beneficiaries.

The following categories of items and services are included in the episodes: physicians’ services; inpatient hospital services (including hospital readmissions); inpatient psychiatric facility services; long-term care hospital services; inpatient rehabilitation facility services; skilled nursing facility (SNF) services; home health agency (HHA) services; hospital outpatient services; outpatient therapy services; clinical laboratory services; durable medical equipment; Medicare Part B drugs; hospice; and some per beneficiary per month care management payments.

2. Unlike other bundled payment models, all providers will continue to bill and be paid through existing payment systems. While the hospital will be held financially accountable, the hospital will not be required to pay other providers for services based on historical data provided within their episode of care.
Medicare will provide participant hospitals with target prices prior to the start of each performance year. All providers and suppliers furnishing covered episodes of care to beneficiaries throughout the year will be paid under existing Medicare payment systems.
Medicare will accumulate quality and cost information for a participating hospital’s episodes of care. Medicare will reconcile the payments received by each participating hospital to the amount the participating hospital is eligible for based on quality and cost targets, which were established for the program based on historical data for the facility. Based on this reconciliation, a participating hospital will either receive additional payments or will be required to repay amounts to Medicare. Medicare is not planning to require repayment for performance year one of the model and will have reduced repayment responsibility in performance years two and three, in order to phase in financial responsibility for spending during covered episodes throughout the model performance years.

3. Both cost and quality will impact a hospital’s ultimate payment under the orthopedic bundled payment initiative. Below are key quality metrics that will be utilized in the payment reconciliation process:

  • The hospital-level risk-standardized complication rate will account for 50% of the overall quality score. This measure is the rate of complications during the episode of care. The following are considered complications in this measure:
  • Acute myocardial infarction
  • Pneumonia or sepsis/septicemia within seven days of admission
  • Surgical site bleeding, pulmonary embolism or death within 30 days of admission
  • Mechanical complications, periprosthetic joint infection, or wound infection within 90 days of admission. Insight Article
  • The “Hospital Consumer Assessment of Healthcare Providers and Systems Survey” will account for 40% of the overall quality score and is a national, standardized, publicly reported survey of patients’ experience of hospital care, which includes consideration of the following seven domains:
  • Doctor’s communication with patients
  • Nurses communication with patients
  • Responsiveness of hospital staff
  • Hospital pain management
  • Staff communication about medication
  • Key information is provided at discharge
  • Post-hospital care transition

The voluntary Patient Reported Outcome Data will provide the remaining 10% of the overall quality score. This measure is expected to allow Medicare to assess postoperative functional outcomes. The details of this voluntary data set are currently under development and will include comprehensive questions about patient’s health and functioning both pre- and-post operative stages.

The quality measures utilized in the reconciliation process will span multiple timeframes as shown below.

4. This initiative is part of a much broader strategy by the Centers for Medicare & Medicaid Services (CMS) to improve coordination among acute and post-acute care providers. It started with readmissions penalties for hospitals and is rapidly moving to other areas such as this orthopedic bundled payment imitative. In addition, SNF Medicare payment rates will be based, in part, on their readmission performance scores beginning on October 1, 2018. As a result, it will behoove providers of all types in urban and rural areas across the country to learn from this initiative and adopt strategies to position themselves for future CMS value-based reimbursement programs.

We hope you find this series informative as you navigate the sea of change in today’s health care industry. Look for the next article “Orthopedic Bundles - A Primer” to be available soon.

We welcome your calls and questions regarding this topic.


Kimberly K. Heller, CPA
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