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Keeping Up with Changes in the CJR Regional Targets

DATE: 10/26/2017

Hospitals in the Medicare Comprehensive Care for Joint Replacement (CJR) program appear to be facing an uphill battle as their targets transition from their own hospital episode baseline experience to targets based on the Medicare episode spend of all hospitals in their region. During the first two performance years of CJR, targets were primarily (66%) based on hospital historical spend during 2012-2014, with the remainder based on the average episode spend of other hospitals in their Metropolitan Statistical Area (MSA). Under this arrangement, hospitals could achieve savings by reducing episode spend below their own historical levels. However, in performance year 3, which begins in January 2018, targets will be based primarily (66%) on regional episodes, with only one-third based on the hospital’s historical baseline episodes. Thus, the hospital’s financial performance will be highly dependent on its Medicare spend relative to other hospitals in its region, rather than its own historical performance.

Those regional numbers are steadily decreasing―in some regions dramatically so. The table below shows the amount by which regional targets decreased in eight out of nine regions. Targets in the Middle Atlantic region decreased the most, by 3.3% from performance year 2 to performance year 3.

This change should be no surprise when considering another recent release from CMS showing the savings accrued by participating CJR hospitals. Eight of the ten hospitals with the largest total dollar amount of savings were in the Middle Atlantic region. When looking at the same data, but using the average savings per episode, nine of the ten hospitals with the highest per-episode savings were also in that region. The average savings for hospitals having more than 100 episodes in this region was $1,588, 45% higher than the average of all hospitals having more than 100 episodes. The reduction in the regional targets arises from the success of these hospitals in reducing Medicare spend below their previous levels.

Financial success during performance year one was primarily driven by a hospital reducing its own episode spend from those in the baseline period. In contrast, financial success during the later years of CJR will be primarily based on the level of a hospital’s spend as compared to its region, rather than its success in reducing its own episode spend.

When hospitals in your region are dramatically reducing episode spend, the implications for other hospitals in the region are significant. As seen in the Middle Atlantic region, the result is a substantial decrease in the regional average, which will reduce performance targets in the later years of the CJR program. Hospitals with historically high Medicare spend who have not been able to decrease at the same rate will find themselves with significant deficits in the later periods of CJR.

This article was developed in collaboration with Singletrack Analytics.  For more information, contact DataGen and follow us on LinkedIn for more learning on healthcare payment reform.

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