April 20, 2016

Medicare's Joint Replacement Program Signals the Need for New Physician Compensation Arrangements

Medicare's Joint Replacement Program Signals the Need for New Physician Compensation Arrangements

On April 1st CMS launched the mandatory Comprehensive Care for Joint Replacement (CJR) program with a bundled payment model for health care costs for the procedure and 90 days after discharge. Earlier CMS alternative payment model programs were voluntary but this program places about 800 hospitals in 67 markets at financial risk if they do not reach Medicare’s cost and quality targets for hip and knee replacements.

The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) allows CMS to create alternative payment mechanisms such as the CJ are and require hospitals and doctors to accept financial risk.

This CJR creates a new relationship between hospitals and doctors, creating a challenge for hospitals and their orthopods to work together in controlling cost and meeting quality measures. CMS will establish target prices for joint replacement cases at the beginning of each year. The target includes all Part A and Part B services for the inpatient procedure and 90 days after discharge from the hospital, and there are provisions for hospitals to repay Medicare if the price targets are not met.

Joint replacements have been the target of previous CMS demonstration projects to contain costs and the focus has been on areas such as standardizing the joint implants to obtain lower prices. The CJR continues the focus on inpatient expenditures but a study by Avalere shows that almost half of the $25,565 average cost of a joint replacement episode comes from post discharge providers such as SNFs and inpatient rehab facilities.

That creates a challenge for doctors and hospitals to reevaluate the role of these facilities and to create alternative outpatient or and physician office based programs that are an alternative to more expensive post discharge facilities. These outpatient and office programs need to have a comprehensive approach to rehab and follow-up care that engages the patient and develops their commitment to rehab.

Redesigning post discharge services has implications for the structure of hospital and physician relationships. The cost savings opportunities are in rehab therapies, ancillary services such as imaging and physician services. Health systems that employ physicians through a relationship with a separate physician professional corporation with its own ancillary services may have more opportunities for controlling costs than health systems were post discharge and ancillary services such as imaging and physical therapy are hospital-based outpatient services. The physician office based services will be paid at Medicare part B rates while the hospital based outpatient services will be paid through Medicare’s hospital outpatient prospective payment system which may have higher rates.

The CJR also has implications for physician employment agreements. The American Medical Association/RAND Corporation study of physician compensation arrangements indicates most physician employment agreements base compensation on productivity measures such as work RVUs or cash receipts. Productivity measures are disconnected from the cost savings and quality incentives in the CJR and most employment agreements currently do not have a mechanism to incent physicians to meet the cost and quality requirements that will make hospital successful in the CJR.

Since many physician employment agreements have a five year term, leading health care systems have implemented new compensation models that incorporate alternative payment models and also address other important issues such as physician burn out. The healthcare team at Marcum LLP has decades of experience in working with hospitals and physicians including the expertise to design and implement new physician compensation arrangements that position both parties for long term success.

If you have any further questions please contact a member of our Health Care Team at (203) 781-9680.

Information contained herein is accurate at the time of publication. We recommend that you consult with your Marcum advisor before implementing any action.

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