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New CJR Target Prices Pose More Challenges for Hospitals

DATE: 05/06/2020

As we recently reported, the Comprehensive Care for Joint Replacement program (CJR) is likely to be extended for another three years. As the program ages, the time period used to establish baseline expenditures also changes. As a result, participants should expect target prices to be lower across all census regions for year five of the program.

Originally, target prices in the CJR program were calculated from a three-year baseline period. In the initial three performance years of CJR, CMS calculated the baseline using a blend of hospital-specific historical spending and regional historical spending by census region. But beginning in performance year 4, CMS determined the baseline solely using regional historic spending. In addition, CMS “re-baselines” the claims and episodes used for the target pricing every two years.

This means that participants currently in the fifth  and final year of the CJR program are facing target prices that are two years more recent than the baseline period used to set prices in performance year 4. The baseline period for performance year 4 was 2014 to 2016, while the baseline period for performance year 5 is 2016 to 2018.

 

TARGET PRICE ANALYSIS: CHANGES BETWEEN PERFORMANCE YEARS 4 AND 5

Target prices across all census regions will be lower for performance year 5, as shown in Table 1.

A major contributing factor to the drop is an 8.25% overall target price decrease in one category: Diagnosis Related Group 459 non-fracture episodes (as seen in Table 2). Other categories had less than a +/- 1% change at the national level. This significant impact is attributable to a CMS policy change related to ankle procedures.
 
Ankle procedures for major joint replacements of the lower extremity (MJRLE) were moved from DRG 470 to DRG 469 in federal fiscal year 2018. Before this, ankle procedures accounted for less than 0.5% of episodes in DRG 469 non-fracture episodes, while in FFY 2018, they accounted for 24% of episodes in that group, as reflected in Figure 1.

Additionally, the Medicare payment for 90-day MJRLE episodes for ankle procedures was, on average, $12,000 less than other DRG 469 non-fracture episodes in FFY 2018. As shown in Figure 2, the difference for non-fracture hip and knee episodes within DRG 469 non-fracture episodes is about $4,000.

     

THE IMPACT ON HOSPITALS

This change means that hospitals will face a more competitive and challenging experience attaining the target price for DRG 469 non-fracture episodes in performance year 5. This change is due to a shift in Medicare payment policy, not regional reductions in episode expenditures alone. Joint location is going to be a confounding factor in any analysis of the CJR program that overlaps into FFY 2018 or beyond.

Overall, this comes down to pricing methodology, and it points to the importance of risk adjustment by joint location (ankle, knee or hip) in MJRLE episodes. This is something that’s currently not applied in the CJR or Bundled Payments for Care Improvement-Advanced (BPCI-A) programs. It also has not been included in the proposed rule for the CJR extension.

 

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