Lower joint surgery is the one of the most common Medicare surgeries in the history of Medicare. Since Medicare’s solvency is a significant concern due to the increasing number of people aging into the system, costs need to be contained and bundled payments are one of the most viable options to do so. Nearly 800 hospitals are participating in the mandatory Comprehensive Care for Joint Replacement (CJR) model for bundled payments of Medicare lower joint surgeries. Since the CJR announcement, there have been a plethora of publications from organizations stating their proposed knowledge on bundled payments and marketing their services to hospitals for how they can enable success in CJR. Many have produced cost assessments similar to the one below that attempt to outline the average cost break down by level of care of a total joint clinical episode:
Average Cost: $25,000 per patient who receives lower joint surgery
Clinical Episode timeline: All procedures patient receives within 72 hours before surgery through 90 days after initial hospital discharge
- Inpatient hospital stay: $12,719
- Skilled nursing facility: $5,034
- Home health agency: $2,123
- Inpatient rehabilitation facility (IRF): $1,568
- Physician: $1,675
- Hospital readmissions: $1,155
- Outpatient: $604
- Durable medical equipment: $122
It is unclear how a hospital administrator can make strategic decisions about cost savings from this assessment. Hospital administrators may be thinking: “If my hospital’s average spend per episode is $25,000, how is that $25,000 divvied up by each level of care? Based on the total cost of each level of care, I can identify the most expensive level of care in a total joint surgery and focus there to reduce cost.” However, poor conclusions may be drawn by failing to incorporate average facility cost per patient.
If you look at the above cost assessment, the inpatient hospital stay, skilled nursing facility, and home health appear to be the three most costly components of the clinical episode. One may determine that these levels of care are where the hospital should focus to reduce cost. However, if a patient is admitted to an inpatient rehabilitation facility (IRF), the average cost is not $1,500 for this level of care, it is approximately $15,000. This patient’s cost has jumped from roughly $13,000 to $28,000 by day 10 of their 90 day clinical episode. Considering IRF is an inappropriate level of care for the vast majority of lower joint surgery patients, the first priority should be to eliminate unnecessary admissions to IRF because it is the most costly level of care. To illustrate this point, if a hospital performs 600 lower joint surgeries a year and is able to reduce IRF utilization from 10% (or 60 patients) to 3% (or 18 patients), the hospital could hypothetically save $630,000 a year. Knowledge about the average facility cost per patient is vital to understanding hospital claims data, cost analysis, and areas for cost savings.
As shown here, hospitals can make significant mistakes implementing CJR by not only misinterpreting the data themselves, but also partnering with an organization who has no experience analyzing CMS claims data or implementing orthopedic bundled payments. If hospitals decide to contract with a CRJ business partner, they need to choose wisely.
For more information or assistance in working with bundled payments and value-based care, visit SignatureCareManagement.com.