Medicare’s bundled ortho payments yield modest savings

Medicare’s randomized trial of a new bundled payment model for hip and knee replacement surgeries led to $812 in savings per procedure, a 3.1% reduction in costs when compared with traditional means of paying for care, according to new research.

The study from Harvard T.H. Chan School of Public Health and Harvard Medical School found that the bundled payment model was also associated with a reduction in the use of skilled nursing care after hospitalization, but had no effects on complication rates among patients.

Published online today in the New England Journal of Medicine, the study confirms what an earlier Medicare study had found in terms of savings. In September, the Centers for Medicare & Medicaid Services (CMS) announced that Medicare payments for lower extremity joint replacement care fell by 3.3% among participating hospitals compared to a control group in the first year of its bundled payment pilot program. Quality of care was maintained in both settings, the federal health insurer said.

“Interest in bundled payments has exploded the past few years,” said Michael Barnett, one of the lead authors on the study and assistant professor of health policy and management at Harvard Chan School. “The big question has always been whether this new model can lead hospitals to meaningfully reduce spending without harming patients. This study indicates that with the right financial incentive, hospitals can save money without compromising quality by sending more patients home rather than to a nursing facility.”

Bundled payments are an alternative payment strategy that health plans, Medicare, and Medicaid are experimenting with to reduce expenses. Unlike traditional fee-for-service payments, bundled payments provide a single, fixed payment for a procedure and follow-up care rather than individually paying all parties separately.

In January 2016, CMS required all hospitals in 67 geographic areas to participate in the five-year “Comprehensive Care for Joint Replacement” (CJR) program aimed at lowering healthcare costs and improving outcomes. The program bundles payments for hip and knee replacements from hospital admission to 90 days after discharge.

Under the model, hospitals in the selected cities received bonuses or penalties depending on how much they spent on follow-up care 90 days after joint-replacement patients were discharged. The program is the largest randomized policy experiment in Medicare to date of a new payment model.

To determine if the bundled payment model was effective at reducing costs and complications, the Harvard researchers analyzed data from the first two years of the program (2016-2017). They compared costs associated with 280,161 joint replacement procedures in 803 hospitals that were required to participate in the bundled payment program with 377,278 procedures in 962 hospitals that were not participating in the program.

The analysis showed that before accounting for administrative costs, bonuses and penalties, the bundled payment model resulted in a modest 3% savings for each patient and that complications rates did not increase. The cost savings were driven almost exclusively from reducing the use of post-acute care nursing facilities, the researchers said.

One concern that has been expressed over bundled payments is that such models may incentivize hospitals to avoid operating on sicker, more costly patients. The Harvard study, however, showed that the model had little impact on the number of higher-risk patients who received lower extremity joint replacements.

The study adds to the growing body of evidence that bundled payment models reduce spending without sacrificing quality of care, the researchers said. They added that the cost savings associated with bundled payments grew during the 18-month study period and that it is likely savings would continue to grow as the bundled payment model matured.

“While there is widespread agreement that we need to move away from our typical payment system, how to do so remains unclear,” said Ateev Mehrotra, senior author and associate professor of health care policy at Harvard Medical School. “We need more rigorous experiments such as this one.”