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CMS Announces April 1 as Start Date for Joint Replacement Bundled Payments

Companies in the joint reconstruction space can expect greater scrutiny of cost and quality with the Centers for Medicare & Medicaid Services’ (CMS) finalization of mandatory bundled payments for hip and knee reconstruction. The Comprehensive Care for Joint Replacement model—now referred to as CJR by CMS—begins April 1, 2016 and is mandatory for hospitals in 67 metropolitan areas.

Device companies have awaited the final rule as much as other stakeholders. Exactech executives have touted the GPS system and ConforMIS leadership has pointed up the iTotal CR, saying that they are well-positioned to address CJR’s economic and patient outcome goals.

The need to enhance the quality of patient outcomes while simultaneously managing costs makes proposals like CJR “expression[s] of reality,” said David Dvorak, President and CEO of Zimmer Biomet, in the company’s 3Q15 conference call. He noted that, as a merged entity, Zimmer Biomet is uniquely positioned to address those demands in an evolving health care environment. “And rest assured,” Dvorak continued, “that both from clinical as well as service and solution innovations, we would look to be an integrator and a more comprehensive provider of solutions in that context.”

CMS is promoting the ability of hospitals, surgeons and post-acute care providers to work together to improve quality of care, while simultaneously decreasing expenditures for DRGs 469 and 470. Each bundle will include the time of surgery through 90 days after hospital discharge.

With the five-year test model, CMS will set a target price for surgery based upon geographic region. Participating hospitals will receive a reconciliation payment if episode payments are below the target price. During the second performance year, hospitals will be required to repay Medicare for a portion of the spend that exceeds the target price. Hospitals will also be required to achieve quality targets in order to be financially rewarded.

The impact of CJR or other CMS value-based initiatives, like the Bundled Payments for Care Improvement (a voluntary program), is unknown. Device companies must be mindful of several considerations as CMS seeks to move 90 percent of its payments to a value-based model by 2018.

  • CJR includes surgeon gain sharing. Surgeons could be incentivized to assist their hospitals in meeting the cost and quality requirements set forth by Medicare.
  • Medicare spend per-episode is split nearly equally, with approximately half taking place in the hospital and half post-discharge. Device companies that offer solutions beyond the operating room could be better positioned than others.
  • Hospitals are using different strategies, including price concessions, risk sharing and demand match, to meet CMS’ goals. Device companies must consider how these approaches will impact them.

CJR runs from April 1, 2016 to December 31, 2020. During that period, CMS expects savings of $343 million. Hip and knee replacement was chosen because of the wide variation in expenditures: from $16,500 to $33,000 for surgery, hospitalization and recovery. More than 400,000 procedures were completed in 2014, at a cost of more than $7 billion for the hospitalization alone.

If CJR is successful, it’s expected that CMS will roll out additional mandatory models.