Clinical laboratories must stay informed about the success of bundled-payment initiatives because they will need to negotiate a share of these payments where medical laboratory testing is involved

Research published this year concluded that bundled payments for joint replacement services performed on Medicare patients reduce Medicare’s costs without negatively affecting patient outcomes. Because these types of surgeries do not generally utilize many lab tests, the question is still out as to whether bundled payments allow clinical laboratories to be adequately reimbursed for their services.

The study of the bundled payment program was published in the Journal of the American Medical Association (JAMA). The researchers sought to determine the cause of the reduction in Medicare payments and hospital savings when bundled payment models for joint replacement surgeries were used.

The research was performed by staff at the Perelman School of Medicine at the University of Pennsylvania (UPenn). They examined hospital costs and Medicare claims for patients requiring hip and knee replacements at the 5-hospital Baptist Health System (BHS) in San Antonio. 

The researchers found that the utilization of bundled payments could save Medicare up to $5,577 per joint replacement surgery. Most the savings were obtained through lowered prices for implants and supplies, and from shorter hospital stays after the medical procedures were performed.

“This study outlines how one bundling participant achieved hospital and post-hospital discharge savings while reducing Medicare payments—all without compromising quality,” said lead author Amol S. Navathe, MD, PhD, Assistant Professor at the Perelman School of Medicine in a UPenn news release.

Amol S. Navathe, MD, PhD (above), Assistant Professor at the Perelman School of Medicine and lead author of the study published in Jama, said in a news release, “The results offer guidance for both providers and a new administration considering decisions that will impact the health of patients and communities nationwide. Policymakers should take note of the fact the results suggest hospitals may directly benefit in bundled payment models.” (Photo copyright: University of Pennsylvania.)

Incentivizing Doctors Lowers Costs

The researchers examined 3,942 joint replacement episodes performed at the BHS during a 7-year period. They defined an “episode” as the surgery itself plus the 90-day period following the procedure. The joint replacement surgeries examined occurred between July 2008 and June 2015.

Of those patients:

• 3,738 did not encounter complications and Medicare saved an average of 20.8% on those services;

• For the remaining 204 patients who did experience complications, Medicare still saved an average of 13.8% for the procedures, according to the UPenn study.

In addition to the savings, the amount of time patients spent in the hospital declined 67%. The UPenn researchers estimated that bundled payments could save Medicare up to $2 billion annually.

“On the whole, the health system’s rapid achievement of savings through changes in a few key areas suggests that hospitals in the long run will be able to reduce costs in many areas, not only internally but through greater care coordination with external facilities,” Navathe said in the UPenn news release. “There are still more savings on the table,” he noted.

The study also suggests that incentivizing physicians and hospitals will help insure the success of money-saving tactics. “It’s striking that those costs fell only with the introduction of a bundled payment model that incentivized physicians too,” Navathe concluded.

Holding Hospitals Responsible for Costs and Quality of Care

According to the Centers for Medicare and Medicaid Services (CMS), hip and knee replacements are the most common procedures for Medicare patients. These types of procedures often require long hospital stays and rehabilitation periods. In 2013, more than 400,000 such surgeries resulted in a $7 billion bill for Medicare, according to a CMS Fact Sheet.

In 2015, CMS instituted the mandatory Comprehensive Care for Joint Replacement bundled payment model in 75 geographic areas throughout the country. This initiative holds hospitals accountable for costs and the quality of care for every joint replacement episode.

The hospital’s quality of care and cost performance determines whether the hospital is required to repay Medicare for part of the procedure or not. Bundling payments incentivizes hospitals, physicians, home health agencies, rehabilitation centers, and nursing facilities to work together to coordinate the best possible care and outcomes for each individual patient.

This initiative was launched after Medicare’s Acute Care Episodes (ACE) and Bundled Payments for Care Improvement (BPCI) projects revealed that more information was required to help hospitals redesign care for joint replacement episodes.

ACE was a demonstration that tested the use of bundled payments as an impetus for hospitals and physicians to improve the quality and efficiency of provided care. The 3-year study included eight cardiac and nine orthopedic surgical services.

The BPCI initiative was created by the CMS Innovation Center to examine payment and service methods to reduce expenditures. The plan was to lower Medicare’s costs by holding healthcare organizations accountable for their performance for an entire patient episode.

Clinical Laboratories Could Also be Held Accountable for the Quality of Their Services

Bundled payment models can be successful in helping providers work together for the best patient outcomes. They can also result in a loss of coordination between various providers working on different aspects of a case.

Medicare typically makes separate payments to healthcare providers for their services in patient care. Thus, as the Medicare program introduces bundled payment arrangements for other types of clinical services, clinical laboratories and pathology groups that provide lab test for patients in these programs should be ready to make their case for receiving a fair share of the bundled payments. For that reason, pathologists and medical laboratory managers should be interested in what Medicare learned from this 2008-2015 pilot project.

—Jillia Schlingman

Related Information:

Medicare Bundled Payments for Joint Replacement Cut Costs by 20%

Cost of Joint Replacement Using Bundled Payment Models

Study: Health System Saves 20 Percent on Joint Replacements Under Bundled Payment Model

Comprehensive Care for Joint Replacement

Medicare Acute Care Episode (ACE) Demonstration

Bundled Payments for Care Improvement Initiative (BPCI) Fact Sheet

Medicare Bundled-Payments Model Cut Joint Replacement Costs by More Than 20 Percent

New Medicare Program Bases Reimbursement for Hip and Knee Replacements on Value-Based Criteria, Now in 67 Regional Markets

Medicare Moves Forward with Bundled Payment Reimbursement as Part of a Trend That Has Major Ramifications for Clinical Pathology Laboratories

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