D ATA D R I V E N . P O L I C Y F O C U S E D LDI ResearchBRIEF Research to Improve the Nation’s Health System 2017 . No. 1 COST OF JOINT REPLACEMENT USING BUNDLED PAYMENT MODELS Amol S. Navathe, Andrea B. Troxel, Joshua M. Liao, Nan Nan, Jingsan Zhu, Wenjun Zhong, and Ezekiel J. Emanuel JAMA Internal Medicine, January 2017 KEYFINDINGS Medicare bundled payments for joint replacement produced significant savings for a hospital system and reduced Medicare payments. The savings were driven by reductions in implant cost and in post-acute care spending. THE QUESTION They matched Medicare claims data and BHS internal cost data for Medicare patients discharged from BHS hospitals for episodes of major Bundled payments apply a fixed price to episodes of care, thereby joint replacement. They used Medicare claims to construct care episodes incentivizing care coordination and efficiency. In 2009, the Centers for that included acute hospital facility payments, physician fees during Medicare and Medicaid Services (CMS) piloted an orthopedic bundle, hospitalization, and PAC payments up to 30 days after hospital discharge. the Acute Care Episode (ACE) demonstration, for in-hospital costs only. In 2013, CMS expanded the voluntary model with Bundled Payment for They analyzed changes in episode payments, internal hospital costs, and Care Improvement (BPCI), which included both acute hospital and post- PAC spending across four study periods: the ACE baseline, when the acute care (PAC) for 30 days. These projects led to the Comprehensive hospital was paid fee-for service; the ACE period; a transition period Care for Joint Replacement (CJR) program in 2016 - a mandatory between ACE and BPCI, when data were unavailable; and the BPCI bundled payment program for all 800+ hospitals in 67 urban geographic period. They analyzed changes in quality using the 30-day readmission areas. CJR bundled payments include hospital, physician, and PAC rate, emergency room visit rate, and proportion of episodes with a services for 90 days. prolonged length of stay (PLOS). The Trump administration and new CMS leadership will need to decide whether to continue to ramp up mandatory bundles, and have expressed misgivings about this approach. Evidence on the effects of bundled THE FINDINGS payment is more important than ever, while hospitals already in CJR need Episode Payments guidance in redesigning care. This observational study looks at whether Between 2008 (the baseline) and 2015, average Medicare payments to bundled payment for joint replacement through the ACE and BPCI BHS for joint replacement without complications decreased nearly 21% affected quality, hospital costs and post-acute care spending. Did the from $26,785 to $21,208, with significant reductions only during BPCI. bundles save money, and if so, what produced those savings? See graphic. Average episode spending on cases with pre-existing complications decreased 13.8% between 2008 and 2015, although the decrease was not THE STUDY statistically significant. The authors studied 3,942 patients who had major joint replacement Hospital Savings of lower extremities, between 2008 and 2015 at Baptist Health System Hospitals earned savings (that is, additional margins) by internal cost (BHS) in Texas. BHS is a clinically integrated network of five hospitals that reductions, and for the BPCI period only, by decreasing PAC spending. participated in ACE and BPCI. By the end of 2015, 51% of savings came from internal reductions, mostly from decreasing the cost of implants and supplies, and 49% of savings COLONIAL PENN CENTER | 3641 LOCUST WALK | PHILADELPHIA, PA 19104-6218 | LDI.UPENN.EDU | P: 215-898-5611 | F: 215-898-0229 | @PENNLDI ResearchBRIEF LDI gainsharing mechanism. Including surgeons in the decision making process enabled BHS to standardize implant use. • Hospitals can generate savings without compromising on quality, or only selectively choosing the lowest-risk patients. During the study period, there were no significant changes in patient risk scores, hospital readmission or emergency room rates. • Organizational and market characteristics can improve a hospital’s performance in a bundled payment initiative. The authors suggest that BHS’s success in BPCI can be partially attributed to building blocks established during ACE: data infrastructure and an orthopedic working group tracking variations in care. Additionally, BHS utilized Episode Spending in ACE and BCPI Models. Blue line is fitted episode spending; red line is home care services available in its local market to reduce the use of CMS target price under BCPI. Source: JAMA Internal Medicine institutional PAC, allowing it to reduce PAC costs. • How bundles are designed matters. In contrast to BPCI, the from a decrease in PAC spending, mostly from a decreased use of new CJR program involves a 90-day bundle, incorporates risk- institutional care. Implant costs decreased by 29% from $6,636 to $4,716 adjusted hospital complications such as acute myocardial infarction over the study period. and pneumonia into quality measurement, and utilizes regional PAC spending decreased only when it was included in the bundle (the benchmarks in computing hospitals’ baselines. BPCI model). From 2013 to 2015, average inpatient rehabilitation facility While the BHS experience may not generalize to all providers, these spending per episode declined 54% from $2,601 to $1,185, accounting for results can provide guidance to other organizations by delineating how a 45% of total hospital savings. Average skilled nursing facility spending high-performing system achieved its savings. per episode fell 24% from $2,476 to $1,875 and accounted for 19% of total hospital savings. Quality of Care From baseline to the end of 2015, the proportion of cases with prolonged Navathe AS, Troxel AB, Liao JM, Nan N, Zhu J, Zhong W, length of stay (PLOS) decreased from 22% to 7%, while rates of Emanuel EJ. Cost of Joint Replacement Using Bundled readmissions and emergency room visits did not change. The severity of Payment Models. JAMA Intern Med. Published online patient illness remained stable. January 03, 2017. doi:10.1001/jamainternmed.2016.8263 THE IMPLICATIONS During a period in which Medicare payments for joint replacement ABOUT LDI episodes increased by 5% nationally, an early adopter of bundled payments saw a 21% decrease in total Medicare payments per Since 1967, the Leonard Davis Institute of Health Economics (LDI) uncomplicated joint replacement episode. This study identifies implant has been the leading university institute dedicated to data-driven, costs and institutional PAC spending as areas of potential major savings. policy-focused research that improves our nation’s health and health These results can inform health systems in care redesign as Medicare care. Originally founded to bridge the gap between scholars in moves to reimburse more services through bundled payments. business (Wharton) and medicine at the University of Pennsylvania, The authors draw several lessons from BHS’s success in implementing LDI now connects all of Penn’s schools and the Children’s Hospital of bundled payments: Philadelphia through its more than 200 Senior Fellows. • Hospitals can save money by reducing implant costs and institutional PAC utilization, changes that can be made without intensive care LDI Research Briefs are produced by LDI’s policy team. For more coordination investments. BHS reduced implant costs by almost 30% information please contact Janet Weiner at weinerja@mail.med.upenn.edu. (compared to a 15.5% reduction nationally) through its successful LEAD AUTHOR DR. AMOL NAVATHE Amol Navathe, MD, PhD, is an Assistant Professor of Health Policy and Medicine at Penn. He is a practicing physician, health economist and engineer with an expertise in delivery transformation and policy design. His work focuses on the use of data analytics and technology to enhance health care delivery, inform policy and improve physician and economic behavior.