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Risk-Adjust CJR 'to be Equitable,' Says Researcher

News  |  By Christopher Cheney  
   September 13, 2016

Hospitals that have case mixes with relatively high numbers of medically complex patients face unfair financial penalties, researchers say.

The Comprehensive Care for Joint Replacement model, a mandatory Medicare bundled-payment program, is financially flawed and will unfairly penalize hospitals that treat medically complex patients, University of Michigan researchers say.

In a study published last week in Health Affairs, researchers call on the Centers for Medicare & Medicaid Services to risk-adjust CJR's financial performance reward-and-penalty mechanism to reflect the high costs of treating frail patients.


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Case mix has a fundamental impact on hospital operating costs, Chandy Ellimoottil, MD, a clinical lecturer in Ann Arbor and practicing urologist who is the lead author of Health Affairs study, told HealthLeaders over the weekend.

"Case mix matters across hospitals," he said. "That's called warranted variation, which is essentially differences in methods and costs that are due to complexity of patients. Unwarranted variations should be the target of bundled payments programs and most performance programs—the use of discretionary services and the unmonitored use of skilled nursing facilities, those are kinds of unwarranted cost variation and they should be targeted."

"You should want to adjust for as much warranted variation as possible just to be equitable," Ellimoottil said.


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The Hospital Readmissions Reduction Program is among the prime examples of CMS performance programs that feature financial penalties and risk-adjustment for medical complexity, Ellimoottil said.

CMS began implementing CJR in April, with upside-only risk this year and two-sided risk set to kick in next year. About 800 hospitals in 67 metropolitan areas are participating in CJR on a mandatory basis.

Under CJR, healthcare providers such as orthopedic surgeons and hospitals receive standard fee-for-service payments from Medicare for all claims through 90 days after discharge.

To determine gainsharing payments and financial penalties, CMS will compare healthcare provider spending on a patient's 90-day episode of care against a target episode price.


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This year, target episode pricing is based mainly on historical spending patterns. In future years, target episode pricing will be based increasingly on regional spending patterns.

The University of Michigan researchers contend that risk-adjustment for the medical complexity of patients is needed in the CJR program to help ensure that hospitals with high concentrations of frail patients are not subjected to unfair financial penalties.

As CJR shifts from target-price benchmarking based on a hospital's performance history to benchmarking on a regional basis, financial inequity in the program will increase, Ellimoottil said.

"Risk-adjustment only matters when you are comparing hospitals to one another. Risk-adjustment did not matter so much for previous bundled payment programs like Bundled Payments for Care Improvement. CJR is unique because it utilizes a regional benchmark and because it is a mandatory program. These two points often get buried when trying to understand why risk-adjustment is important for CJR."

The Health Affairs study is based on data collected from 23,251 Medicare beneficiaries who had hip and knee replacement procedures in 60 Michigan hospitals from 2011 to 2013.

According to the study, Ellimoottil and his co-authors compared the impact of historical vs. regional target-price benchmarking and "found that reconciliation payments were reduced by $827 per episode for each standard-deviation increase in a hospital's patient complexity. Moreover, we found that risk adjustment could increase reconciliation payments to some hospitals by as much as $114,184 annually."

The University of Michigan researchers developed a modest risk-adjustment mechanism for CJR that steers clear of disputed risk factors such as socio-economic status (SES).

"It touches SES a little bit because the risk-adjustment model includes a variable for dual-eligible status, but we don't include race and a lot of other more controversial factors. It really is more about medical comorbidities, and most CMS programs have some kind of risk-adjustment program. What we're looking at is just basic risk adjustment."

Christopher Cheney is the CMO editor at HealthLeaders.

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