Blog, The Hospital Finance Podcast®

Comprehensive Care for Joint Replacement (CJR) Target Pricing & Episode Spending Calculations [PODCAST]

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Hospital_Finance_Podcast smallIn this episode, Derrick Chavis, Manager of Reimbursement Services at BESLER Consulting reviews how target pricing and episode spending are calculated for the Medicare Comprehensive Care for Joint Replacement (CJR) bundled payment program.
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Michael Passanante:   Welcome back. This is Mike Passanante, and we are very glad that you are here with us again on the Hospital Finance Podcast. Today, I am joined once again by Derek Chavis who is a manager in our Reimbursement Services Team here at Besler Consulting. Today, Derek is going to help us understand how providers are paid under the Medicare CJR Program.

Welcome back, Derek.

Derek Chavis: Thank you very much. I appreciate it.

Michael: So, right off the bat, can you tell us how will providers and suppliers be paid under the CJR model?

Derek: Sure! All providers, including SNFs and their suppliers, will continue to be paid as usual under the Fee for Service Payment System. The rates, the rules, and the procedures will all remain constant.

The only difference being that under this new CJR model, upon completion of a performance period, Medicare claims furnished to the beneficiary during the episode will be combined to calculate what’s referred to as episode spending.

Michael: Can you explain episode spending to us?

Derek: Sure. CMS calculates the spending for an episode by summing payments for qualified hospitalizations under MSDRG’s 469 and 470, and all subsequent and related part A and part B spending for 90 days post-discharge. It’s the sum of these costs, which is referred to by CMS as episode spending.

Michael: So, what are the costs that are included in episode spending?

Derek: CJR episode spending includes payments to both participating and non-participating physicians, but it does exclude payments to physicians that have opted out of the Medicare program. Capital payments are included in CJR spending calculations.

Note though that only payments specifically related to a CJR episode are included. If payment is made for a period that extends beyond the end of the CJR episode, it will be pro-rated so that only the portion attributable to the period during the episode is included in that episode spending.

If a payment was made for home health services, for example, that started before the episode and ended during the episode, those costs would also be pro-rated.

CMS estimates that 50% of CJR episode expenditures will be for in-patient care, 15% for physician payments, and 35% for other services and providers.

Michael: So Derek, how is CMS going to link quality to the payment that providers receive?

Derek: CMS had adopted a composite quality score methodology. The composite quality score is a hospital-level quality score reflecting performance and improvement on the two quality measures finalized for this model, THA/TKA complications measure and the HCAHPS patient experience survey.

Successful reporting of outcomes and risk data will be an inherent component of these measures. The composite quality score methodology was adopted to determine, one, the amount of quality incentive payment that may be made to the hospital and, two, the hospital’s eligibility for reconciliation payment, if savings are achieved beyond the target price.

Michael: So you just mentioned the target price. Can you explain what the target price is or what target pricing is as it might be known?

Derek: Sure. CJR or hospitals will receive separate episode-specific target prices for MSDRG’s 469 and 470, each reflecting the differences and spending for episodes initiated by the respective DRG’s.

In response to comments, CMS will implement a specific pricing methodology for hip fracture patients, due to a significantly higher spending associated with these more complex cases.

A simple risk stratification methodology will be used to set different target prices for patients with hip fractures within each MSDRG.

Michael: So Derek, how will cost of care targets be established?

Derek: Episode cost of care targets will be established based initially any way on a mix of both hospital-specific and historic regional spending, eventually, transitioning to only regional spending. In early performance years, targets will be established based primarily on hospital-specific historical spending during the 90-day episode. But in later performance years, targets will be established based solely on regional historical spending.

Michael: So how is the target price calculated?

Derek: CMS will use the three most recent years of available claims data for establishing the base line period for each performance year in calculating the historical benchmark against which actual spending will be compared.

Historical benchmarks will be re-based every two years.

Michael: Can you explain how episode spending and target pricing will be used in determining provider payments?

Derek: Sure. CMS will be using both components, episode spending and target pricing to help them in their determination of reconciliation and/or repayment amounts that are made to either CMS or the provider.

After each performance year, CMS will perform a retrospective reconciliation of episode spending. Total episode spending amounts will be compared to target prices by calculating what’s called net payment reconciliation amount or the NPRA, which is really just the sum of the amounts above and below the target price for each episode in the performance period.

If the final NPRA is below zero, that amount is paid to the hospital as what’s referred to as reconciliation payment, as long as that hospital has met a minimum composite quality score. If the NPRA is above zero, that amount is owed to CMS by the hospital as a repayment amount.

It should be noted that hospitals will not be responsible for any repayment amounts due for the first performance year, but may earn reconciliation payments for all performance years.

Michael: Derek, thanks for coming by to shed some light on how our providers are going to be paid under the CJR model.

Derek: Thanks.

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