On December 20, 2016, CMS issued its final rule implementing three new Medicare Parts A and B episode payment models for patients admitted for treatment for heart attack, bypass surgery, or hip/femur fracture under its Section 1115A authority to test innovative payment and service delivery models.  For the three conditions, hospitals will be accountable for the quality and cost of care provided during hospitalization and virtually all care within 90 days of hospital discharge.  The final rule also implements a cardiac rehabilitation incentive payment model, makes adjustments to the Comprehensive Care for Joint Replacement Model (the “CJR Model”), and provides new ways for physicians who participate in bundled payment models to qualify for an incentive under the Quality Payment Program created by MACRA.

How the New Episode Payment Models Work

Under the new episode payment models, the hospital is financially responsible for the quality and cost of an episode of care from admission until 90-days after discharge.  CMS will establish annual Medicare episode quality-adjusted target prices for each participant hospital that will include payment for all related services provided to eligible beneficiaries who are treated and discharged for specified Medicare Severity-Diagnosis Related Groups (MS-DRGs) relating to heart attacks, bypass surgeries, and hip/femur fractures.  CMS will initially set annual quality-adjusted target prices based on a blend of provider-specific pricing and pricing in the relevant census regions, while increasing the proportion of regional pricing over time. 

Providers will continue to be paid under the usual payment rules of the Medicare program for episode services provided throughout the year.  At the end of each year, actual spending for all episodes will be aggregated and compared to the aggregate quality-adjusted target price for the participant hospital.  Under the new models, participants will earn a composite quality score (CQS) based on quality of care previously provided and performance relative to other hospitals.  At the end of each performance year, hospitals with actual episode spending below the target price and an acceptable or better CQS will be eligible to earn a reconciliation payment from Medicare for the difference between the target price and actual episode spending, up to a specified limit.  Hospitals with model episode spending exceeding the target price will be financially responsible for the difference to Medicare, up to a specified repayment limit. 

Hospital Participants Under the New Episode Payment Models

Acute care hospitals in certain selected geographic areas will participate in the episode payment models.  The heart attack and bypass surgery models will be implemented in 98 geographic areas, defined by metropolitan statistical areas (MSAs).  The hip/femur fracture model will be implemented in the 67 MSAs where the CJR Model is currently proceeding. 

Cardiac Rehabilitation Incentive Payment Model

Under the cardiac rehabilitation incentive payment model, providers will continue to be paid under the usual Medicare program payment rules.  At the end of each performance year, hospitals may receive an additional incentive payment depending on beneficiaries’ utilization of cardiac rehabilitation services.
The cardiac rehabilitation incentive payment model will be carried out in 45 geographic areas also designated for the heart attack and bypass surgery models, defined by MSAs, as well as in 45 geographic areas not selected for the heart attack and bypass surgery models. 

Adjustments to the CJR Model

In addition to expanding the CJR program to include hip and femur fractures, the final rule makes several other modifications to the program primarily to make it consistent with the other episode payment models.  These adjustments include refinements for use of the skilled nursing facility waiver, exclusion of beneficiaries participating in selected accountable care organizations, and revising the methodology for target pricing to include reconciliation and repayment amounts for performance years 3, 4, and 5. 

The new episode payment models are slated to begin demonstrations July 1, 2017, and last through 2021, unless they are overturned by the new administration.  Tom Price, the nominee for Secretary of HHS, has previously introduced legislation to undo the CJR program.  For more information, click here to view CMS’s Fact Sheet regarding the final rule.