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Member Research & Reports

Member Research & Reports

Michigan Study: Medicare’s New Way of Paying Hospitals Could Cause a Bundle of Problems for Some

Hospitals that take care of the oldest, sickest and most complicated patients could suffer financially under the Medicare system’s new approach to paying for some types of care, a new study finds.

Dr. Andrew Ryan
[Photo: Dr. Andrew Ryan]

But there is still time to adjust the approach to make the playing field more level, the researchers from the University of Michigan say in a new paper published in the September issue of Health Affairs.

While the payment program only applies right now to hip and knee replacements in 800 hospitals in certain metro areas, and only started four months ago, its use is likely to expand to more conditions and include more hospitals. The Centers for Medicare and Medicaid Services — the federal agency that runs Medicare — has put an emphasis on the approach as it tries to encourage smarter spending for the care of millions of older and disabled Americans.

That’s why the U-M team set out to use real-world data to look at the potential impact of the approach, called mandatory bundled payments. They simulated the impact of the new Medicare program, called Comprehensive Care for Joint Replacement.

CJR pays hospitals a set “bundled” amount for the full range of care provided to a hip or knee replacement patient, rather than paying individual bills for parts of that care such as the operation, hospital stay, and care after the hospitalization. “Reconciliation payments” then reduce payments to hospitals if their spending is above a target, and increase payments if spending is below a target.

“Previous bundled payment programs have based reconciliation payments on a hospital’s own past performance, but under CJR those payments gradually become based on a comparison with hospitals in a wide region,” says Dr. Chandy Ellimoottil, lead author of the new paper. “We found that this will result in more penalties for hospitals that care for more complex patients. We also found that changing the program to account for patient complexity would dampen this impact.”

In addition to Ellimoottil, the research team includes co-authors Dr. Andrew Ryan, of the U-M School of Public Health, and Dr. James Dupree, and senior author Dr. David Miller. Research team members include Dr. Brian Hallstrom, who leads the Michigan Arthroplasty Registry Collaborative Quality Initiative, funded by Blue Cross Blue Shield of Michigan. The new analysis uses anonymous Medicare data from 23, 251 Michigan residents who had hip or knee replacement surgery at 60 hospitals across a three-year period.

The hospitals that operated on patients who had more coexisting health problems, or were older or more seriously ill, stood to lose hundreds of dollars per patient under the program, they found.