CMS’s New Year Bundle of Joy: Comprehensive Care for Joint Replacement

On November 16, 2015, the Centers for Medicare and Medicaid Services (CMS) issued the final rule for the Comprehensive Care for Joint Replacement (“CJR”) payment model governing reimbursement of hip and knee replacement surgeries. 791 hospitals in 67 Metropolitan Statistical Areas (MSA) will receive payment for their care and care provided by their post-acute contractors under this scheme starting on April 1, 2016. No Virginia hospitals were included in the initial test group, but Virginia providers should anticipate receiving reimbursement under this and similar bundled payment programs after the first year of implementation.

CJR will provide a retrospective, bundled payment to hospitals for an “Episode” of care, which starts at admission and extends up to 90 days post-surgery, including care from non-hospital providers for rehabilitation. CMS will provide a target price for each Episode of care depending on the hospital’s historical billing. After the first year, as the CJR payment model expands nationally, CMS will determine target amounts based on regional charges instead of by individual hospital charges.

Hospitals and the post-acute hospital providers and suppliers involved in the Episode of care, referred to as “collaborators,” will continue to be paid under the traditional Medicare system for each service provided. At the hospital’s annual review, Medicare will add up all of the services, including Part A and Part B services, related to all Episodes of care for an aggregate amount and then will add up the target prices for each Episode for a comparison aggregate amount. The hospital and its collaborators—including rehabilitation and long-term care hospitals, nursing facilities and home health providers—will also be required to meet quality measures in addition to coming under the target prices. If the aggregate actual cost of all Episodes is below CMS’s aggregate target cost for the hospital, the hospital will be eligible for “gainsharing” payment subject to its also meeting quality measures. However, if the hospital’s total aggregate cost is above the target aggregate cost the hospital will owe CMS an “alignment” payment for the difference.

Because the financial risk lies solely on the hospital performing the surgery, CMS has encouraged participant hospitals to enter into financial agreements with the collaborators involved in an Episode and has provided for fraud and abuse waivers for these arrangements.[1] Financial agreements should incentivize all providers to reduce cost and increase quality because they will allow for sharing incentive payments for meeting a target price and quality measures. On the other hand, hospitals will be able to reduce their financial risk, as alignment costs may be split by agreement between a hospital and its collaborators if requirements are not met. The final rule also permits hospitals to offer inducements to beneficiaries through provision of preventative services and services that advance clinical goals for recovery. Under the rule, inducements must be provided in kind and must only be provided pursuant to the current Episode of care. If considering financial arrangements, providers should review the final rule requirements for these agreements carefully to ensure compliance.

CMS also responded to provider concerns in drafting the final rule. One of the most prevalent concerns among hospitals was the increased cost of a hip replacement when a hip fracture is part of the diagnosis. In response, CMS agreed to increase the target price for these Episodes, taking into account both the complexity of the surgery and recovery and the emergent circumstances in which hip fractures arise. Additionally, CMS had previously waived the 3 day hospital stay requirement for skilled nursing facilities (SNFs) with a history of 3 star or higher ratings on the Quality Rating System when joint replacement patients are placed in SNFs less than 3 days after surgery.

CMS hopes that the new payment system will encourage hospitals to coordinate with other service providers to bring down the cost of hip and knee replacements and to provide higher quality and more comprehensive care to beneficiaries. Hospitals will have to conduct quality checks on collaborators, as inefficiency or high infection rates at these providers could lead to enormous costs for a hospital if the patient requires more recovery time or readmission due to complications. Home Health agencies and SNFs can anticipate more scrutiny by hospitals. Hospitals will also need to encourage their physician providers to consider efficiency and effectiveness of treatment when performing CJR covered surgeries. For the test group of hospitals, CMS will pay CJR incentives immediately for the first year of implementation. CMS will phase in penalty payments will be phased in after the first year of the CJR program to give hospitals and collaborators time to adjust to the new system.

Should you or your organization have any questions regarding the CJR final reimbursement rule and requirements, please contact Peter Mellette (, Harrison Gibbs ( or Elizabeth Dahl (, or call Mellette PC at (757) 259-9200.

This Client Advisory is for general educational purposes only. It is not intended to provide legal advice specific to any situation you may have. Individuals desiring legal advice should consult legal counsel for up to date and fact specific advice.


[1] CMS and HHS Office of the Inspector General (OIG) will work together to provide waivers for financial arrangements under the Stark and Anti-Kickback laws as long as the arrangements meet certain conditions. Waivers are only applicable within the CJR model. The waivers provided permit sharing gainsharing payment and splitting alignment payment between Participant Hospitals and CJR Collaborators. CJR Collaborators may include post-acute providers and Physician Group Practices (PGPs). If gainsharing payments are made to a PGP, the PGP may then distribute payment to its individual members. Financial sharing agreements must be in writing and must be executed prior to any care being provided. The agreements must list the quality criteria established by the Participant Hospital that will be used in determining gainsharing payment. The CJR Collaborator must meet the quality criteria for the year in which the gainsharing payment is distributed, and the methodology for determining the gainsharing payment must be based, at least in part, on criteria related to and inclusive of the quality of care to be delivered during the Episode. Conditions on PGP distribution to individual members includes requirements that distribution payments are derived solely from gainsharing payments made by a Participant Hospital to the PGP as part of the CJR model and are made subject to a written distribution agreement that sets forth the terms forth the terms and conditions of receiving distributions from the PGP to the individual members. More information on financial arrangements under the CJR model may be found at 42 CFR § 510.500.

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