Big changes coming for hip, knee surgery payments

Doctor examining artifical hip joint and X-ray
Alexander Manton | The Image Bank | Getty Images

The federal government on Thursday proposed reforming the way Medicare pays many hospitals for hip and knee surgeries, offering extra payments to some and imposing penalties on others depending on the outcome of the operation.

The proposal represents the latest effort by the Obama administration—a major one, in this case—to move the health-care system toward paying providers for so-called quality health outcomes instead of for specific procedures such as x-rays and blood tests.

Medicare in 2013 spent $7 billion on hospitalizations alone for hip and knee replacements, which are among the most common surgeries for beneficiaries of that federally run health coverage system for senior citizens. About one-quarter of those procedures would fall under the five-year payment plan proposed Thursday.

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"We are asking health-care providers that offer hip and knee replacements to treat these surgeries as one complete service instead of a collection of individual services," said Health and Human Services Secretary Sylvia Burwell. "We are committed to changing our health-care system to pay for quality over quantity, so that we spend our dollars more wisely and improve care for patients."

"By focusing on episodes of care, rather than a piecemeal system, hospitals and physicians have an incentive to work together to deliver more effective and efficient care," Burwell said.

If the proposal related to hip and knee replacements is approved, it could take effect as soon as Jan. 1 at more than 800 hospitals in 75 metropolitan areas scattered around the United States, in cities including New York and Los Angeles, as well as small one such as Lubbock, Tex., and Flint, Mich.

An estimated 25 percent of the 400,000 such surgeries performed annually would be covered by the new payment model, which would be mandatory for hospitals in the affected regions. Those hospitals and doctors, home health agencies and nursing facilities involved in caring for patients undergoing the surgeries would receive a "bundled payment" for their treatment as opposed to being paid for individual services.

Lessons learned from the program could be applied elsewhere in the U.S. for not only hip and knee replacements, but for other medical treatments, officials said.

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The plan is expected to realize more than $150 million in savings over five years, according to Dr. Patrick Conway, deputy administrator for innovation and quality and chief medical officer at the Centers for Medicare and Medicaid Services.

CMS, in a fact sheet detailing the plan, noted that despite the fact that hip and knee replacements are a common operation, "the quality and cost of care for these ... surgeries still varies greatly."

"The rate of complications like infections or implant failures after surgery can be more than three times higher at some facilities than others, which lead to hospital readmissions and prolonged recoveries," CMS said. "And the average Medicare expenditure for surgery, hospitalization and recovery ranges from $16,500 to $33,000 across geographic areas."

"This variation is party due to the way Medicare beneficiaries receive care," CMS said in a fact sheet detailing the plan. "Incentives to coordinate the whole episode of care—from surgery to recovery—are not strong enough, and a patient's health may suffer as a result."

Secretary of Health and Human Services Sylvia Burwell.
Brendan Smialowskie | AFP | Getty Images
Secretary of Health and Human Services Sylvia Burwell.

Under the proposed plan, providers would continued to be paid under Medicare's existing payment system.

"However, the hospital where the hip or knee replacement takes place would be held accountable for the quality and costs of care for the entire episode of care—from the time of the surgery through 90 days after discharge," HHS said.

"Depending on the hospital's quality and cost performance during the episode, the hospital may receive an additional payment or be required to repay Medicare for a portion of the episode costs."

Burwell said "This model will incentivize providing patients with the right care the first time and finding better ways to help them recover successfully. It will reward providers and doctors for helping patients get and stay healthy."

During a conference call with reporters, Burwell said the proposal is "what we hear than many doctors and hospitals want."

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The proposal is subject to a 60-day public comment period.

The American Hospital Association said, "We look forward to working with CMS to ensure the proposed rule meets the needs of our patients and individual communities."

"CMS' proposal raises important questions that require input from hospitals about what the new payment model could mean for how they deliver patient care," said AHA executive vice president Rick Pollack. "We need to fully analyze the impact of the proposed program and will collaborate with hospitals, health systems and CMS to improve upon it.

The president of the American Academy of Orthopaedic Surgeons said "AAOS is closely reviewing the proposed rule and will be submitting comments to CMS,"

"On initial review, we have some concerns about what appears to be the conversion of an evolving demonstration project to a mandatory, hospital-driven payment framework," said the AAOS president Dr. David Teuscher. "Payments that reward higher quality care must be based on appropriately risk-adjusted, patient-centric, transparent measures that empower physicians and surgeons to deliver the best value for the patients they serve."

Premiere Inc., a health-care improvement alliance of about 3,400 hospitals and 110,000 other medical providers, criticized the plan for being compulsory.

"While members of the Premier health-care alliance are strong supporters of bundled payments that include hospitals, we believe CMS's proposed rule requiring hospitals in 75 different regional markets to take the risk associated with a 90-day joint replacement episode is too much, too fast," said company spokesman Blair Childs. "A voluntary, national program would ensure that only providers who are ready to take on this challenge enter the program, avoiding unintended consequences."

"We look forward to commenting on the proposal and working with CMS to create a viable bundled payment program," Childs said.

Dr. Zeke Emmanuel, senior fellow at the Center for American Progress, said, "We vigorously applaud the administration's decision to reform Medicare payments for orthopedic procedures. Importantly, the initiative includes rehabilitation services, patient-reported outcomes, and a 90-day quality guarantee—ensuring high-quality care that is patient-focused."

"Bundled payments are an important tool of the Affordable Care Act, and this is the first time a payment reform has applied to all medical providers in a particular area," Emmanuel said.

"Still, we hope this major reform can quickly be extended to other medical procedures and areas of care such as spine surgery, cardiac procedures, and cancer treatment," he said. "Second, we hope this form of payment for orthopedic procedures becomes the standard method of payment nationwide, not just in selected locations."

Emmanuel also cited a Congressional Budget Office report that found Medicare could save nearly $50 billion over a decade if more procedures were subject to bundled payment models.