By Derek Ishaque
LTC Industry News
January 20, 2017

Cost of Joint Replacement Using Bundled Payment Models

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Key Points

Question  What are the drivers of reductions in Medicare payments and hospital savings (ie, increased margin) in bundled payment for joint replacement surgeries?

Findings  In this observational study of 3942 patients who received joint replacement surgery, there was a decrease of $5577 (20.8%) in total spending per episode. Most of the hospital savings came from implants and supplies and most of the postacute care savings came from decreased use of institutional care.

Meaning  A large portion of savings came from declines in implant prices and usage of high cost postacute services—both changes that may be implemented rapidly without intensive investment in care coordination.


Importance  Medicare launched the mandatory Comprehensive Care for Joint Replacement bundled payment model in 67 urban areas for approximately 800 hospitals following its experience in the voluntary Acute Care Episodes (ACE) and Bundled Payments for Care Improvement (BPCI) demonstration projects. Little information from ACE and BPCI exists to guide hospitals in redesigning care for mandatory joint replacement bundles.

Objective  To analyze changes in quality, internal hospital costs, and postacute care (PAC) spending for lower extremity joint replacement bundled payment episodes encompassing hospitalization and 30 days of PAC.

Design, Setting, and Participants  This observational study followed 3942 total patients with lower extremity joint replacement at Baptist Health System (BHS), which participated in ACE and BPCI.

Exposures  Lower extremity joint replacement surgery under bundled payment at BHS.

Main Outcomes and Measures  Average Medicare payments per episode, readmissions, emergency department visits, prolonged length of stay, and hospital savings from changes in internal hospital costs and PAC spending.

Results  Overall, 3942 patients (mean [SD] age, 72.4 [8.4] years) from BHS were observed. Between July 2008 and June 2015, average Medicare episode expenditures declined 20.8%, from $26 785 to $21 208 (P < .001) for 3738 episodes of joint replacement without complications. It declined 13.8% from $38 537 to $33 216 (P = .61) for 204 episodes of joint replacement with complications. Readmissions and emergency department visits declined 1.4% (P = .14) and 0.9% (P = .98), respectively, while episodes with prolonged length of stay decreased 67.0% (P < .001). Patient illness severity remained stable. By 2015, 51.2% of overall hospital savings had come from internal cost reductions and 48.8% from PAC spending reductions. Reductions in implant costs, down on average $1920.68 (29%) per case, contributed the greatest proportion of hospital savings. Average PAC spending declined $2443.12 (27%) per case, largely from reductions in inpatient rehabilitation and skilled nursing facility spending but only when bundles included financial responsibility for PAC.

Conclusions and Relevance  During a period in which Medicare payments for joint replacement episodes increased by 5%, bundled payment for procedures at BHS was associated with substantial hospital savings and reduced Medicare payments. Decreases in PAC spending occurred only when it was included in the bundle.

Author Description

Derek Ishaque

Derek is the Owner and CEO of SCRx Pharmacy. He has previous experience in Investment Banking at Bear Stearns and private equity at Bridgescale Partners. Derek has a B.S. in Finance from USC.

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