Should Medicare’s Mandatory Bundled-Payment Program for U.S. Hospitals Be Scaled Up?

The Issue

Since 2013, the Centers for Medicare and Medicaid Services (CMS) has tested voluntary bundled-payment programs to see if providing hospitals or physician group practices with a single, preset payment for all the services required for an episode of care reduces episode costs while maintaining quality of care. In 2016, CMS launched its first and only mandatory bundled-payment program, Comprehensive Care for Joint Replacement (CJR), in about a quarter of urban markets nationwide. In its first year, nearly 50 percent of the 799 hospitals required to participate kept joint-replacement costs below target while maintaining quality.

A Commonwealth Fund–supported study in Health Affairs examined whether policymakers could expect similar results to those observed early in CJR if the program were expanded more broadly nationwide. The researchers compared hospitals in CJR with other hospitals across the United States to identify differences in market and organizational characteristics that might impact a hospital’s ability to lower joint-replacement costs without harming quality. The original hospitals included in CJR were all in urban areas. The comparison hospitals fall into three groups:

1. CJR-eligible hospitals: other urban hospitals that CMS considered for the initial program but did not include
2. Metropolitan hospitals: those located in markets with populations of 50,000 or more people
3. “Micropolitan” hospitals: those located in markets with populations of less than 50,000 people.

What the Study Found

• Overall, the 67 original CJR markets and their hospitals were quite similar to the 129 additional markets and associated hospitals that Medicare initially considered but did not select (the CJR-eligible hospitals).
• Baseline spending on joint-replacement episodes for CJR and CJR-eligible hospitals differed by only $440 prior to the start of the program, suggesting that hospitals in both groups had opportunities to reduce costs.
• Performance on quality metrics was similar across all hospital groups, with some exceptions. For instance, joint-replacement complication rates and mortality rates were significantly higher among micropolitan hospitals than CJR hospitals.

The Big Picture

Given the similarities between CJR and CJR-eligible hospitals, policymakers might consider expanding CJR to markets that contain CJR-eligible hospitals, as a similar proportion of these hospitals could achieve similar cost reductions. However, policymakers should reconsider the design of the program before rolling it out to hospitals in other metropolitan or micropolitan markets. Many hospitals in these regions are smaller or have high clinical case-mixes compared to large urban hospitals and are unable to take on the financial risks associated with fixed-episode payments. While a mandatory bundled-payment program can help ensure wider participation, policymakers should take hospital-specific challenges into account to avoid putting too great a burden on organizations.

The Bottom Line

Expanding CJR to other metropolitan hospitals that were eligible for the program could represent a reasonable path forward to achieving greater value in joint-replacement care through bundled payments. Doing so would expand the proportion of fee-for-service Medicare beneficiaries covered under mandatory bundled payments for joint replacement nationwide from 29 percent to 71 percent.