Emanuel, Ezekiel J.

Liao, Joshua M.

Nan, Nan

Navathe, Amol

Troxel, Andrea B.

Zhong, Wenjun

Zhu, Jingsan

English

Kosmopolis

University of Pennsylvania
ScholarlyCommons
Research Briefs Leonard Davis Institute of Health Economics
1-6-2017
Cost of Joint Replacement Using Bundled Payment
Models
Amol Navathe
University of Pennsylvania
Andrea B. Troxel
Joshua M. Liao
Nan Nan
Jingsan Zhu
University of Pennsylvania, jingsan@mail.med.upenn.edu
See next page for additional authors
Follow this and additional works at: http://repository.upenn.edu/ldi_researchbriefs
Part of the Health Economics Commons, and the Medicine and Health Sciences Commons
LDI briefs are produced by LDI's policy team. For more information please contact Janet Weiner at weinerja@mail.med.upenn.edu.
This paper is posted at ScholarlyCommons. http://repository.upenn.edu/ldi_researchbriefs/22
For more information, please contact repository@pobox.upenn.edu.
Navathe, Amol; Troxel, Andrea B.; Liao, Joshua M.; Nan, Nan; Zhu, Jingsan; Zhong, Wenjun; and Emanuel, Ezekiel J.. Cost of Joint
Replacement Using Bundled Payment Models. LDI Research Briefs. 2017; No. 22.
https://ldi.upenn.edu/brief/cost-joint-replacement-using-bundled-payment-models
Cost of Joint Replacement Using Bundled Payment Models
Keywords
cost, joint replacement, bundled payments
Disciplines
Health Economics | Medicine and Health Sciences
Comments
LDI briefs are produced by LDI's policy team. For more information please contact Janet Weiner at
weinerja@mail.med.upenn.edu.
License
This work is licensed under a Creative Commons Attribution-No Derivative Works 4.0 License.
Author(s)
Amol Navathe, Andrea B. Troxel, Joshua M. Liao, Nan Nan, Jingsan Zhu, Wenjun Zhong, and Ezekiel J.
Emanuel
This brief is available at ScholarlyCommons: http://repository.upenn.edu/ldi_researchbriefs/22
COST OF JOINT REPLACEMENT USING  
BUNDLED PAYMENT MODELS
Amol S. Navathe, Andrea B. Troxel, Joshua M. Liao, Nan Nan, Jingsan Zhu, Wenjun Zhong, and Ezekiel J. Emanuel
JAMA Internal Medicine, January 2017
KEYFINDINGS 
Medicare bundled payments for joint replacement produced significant savings for a hospital system and reduced Medicare 
payments. The savings were driven by reductions in implant cost and in post-acute care spending. 
DATA  D R I V E N . P O L I C Y  F O C U S E D
BRIEFResearchLDI
Research to Improve the Nation’s Health System   2017 . No. 1
THE QUESTION
Bundled payments apply a fixed price to episodes of care, thereby 
incentivizing care coordination and efficiency. In 2009, the Centers for 
Medicare and Medicaid Services (CMS) piloted an orthopedic bundle, 
the Acute Care Episode (ACE) demonstration, for in-hospital costs only. 
In 2013, CMS expanded the voluntary model with Bundled Payment for 
Care Improvement (BPCI), which included both acute hospital and post-
acute care (PAC) for 30 days. These projects led to the Comprehensive 
Care for Joint Replacement (CJR) program in 2016 - a mandatory 
bundled payment program for all 800+ hospitals in 67 urban geographic 
areas. CJR bundled payments include hospital, physician, and PAC 
services for 90 days. 
The Trump administration and new CMS leadership will need to decide 
whether to continue to ramp up mandatory bundles, and have expressed 
misgivings about this approach. Evidence on the effects of bundled 
payment is more important than ever, while hospitals already in CJR need 
guidance in redesigning care. This observational study looks at whether 
bundled payment for joint replacement through the ACE and BPCI 
affected quality, hospital costs and post-acute care spending. Did the 
bundles save money, and if so, what produced those savings? 
THE STUDY
The authors studied 3,942 patients who had major joint replacement 
of lower extremities, between 2008 and 2015 at Baptist Health System 
(BHS) in Texas. BHS is a clinically integrated network of five hospitals that 
participated in ACE and BPCI. 
They matched Medicare claims data and BHS internal cost data for 
Medicare patients discharged from BHS hospitals for episodes of major 
joint replacement. They used Medicare claims to construct care episodes 
that included acute hospital facility payments, physician fees during 
hospitalization, and PAC payments up to 30 days after hospital discharge. 
They analyzed changes in episode payments, internal hospital costs, and 
PAC spending across four study periods: the ACE baseline, when the 
hospital was paid fee-for service; the ACE period; a transition period 
between ACE and BPCI, when data were unavailable; and the BPCI 
period. They analyzed changes in quality using the 30-day readmission 
rate, emergency room visit rate, and proportion of episodes with a 
prolonged length of stay (PLOS).
THE FINDINGS
Episode Payments
Between 2008 (the baseline) and 2015, average Medicare payments to 
BHS for joint replacement without complications decreased nearly 21% 
from $26,785 to $21,208, with significant reductions only during BPCI.  
See graphic.
Average episode spending on cases with pre-existing complications 
decreased 13.8% between 2008 and 2015, although the decrease was not 
statistically significant. 
Hospital Savings 
Hospitals earned savings (that is, additional margins) by internal cost 
reductions, and for the BPCI period only, by decreasing PAC spending. 
By the end of 2015, 51% of savings came from internal reductions, mostly 
from decreasing the cost of implants and supplies, and 49% of savings 
COLONIAL PENN CENTER   |   3641 LOCUST WALK   |   PHILADELPHIA, PA 19104-6218   |   LDI.UPENN.EDU   |   P: 215-898-5611   |   F: 215-898-0229   |    @PENNLDI
BRIEFResearchLDI
LEAD AUTHOR
DR. AMOL NAVATHE 
Amol Navathe, MD, PhD, is an Assistant Professor of Health Policy and Medicine at Penn. He is a practicing physician, health 
economist and engineer with an expertise in delivery transformation and policy design. His work focuses on the use of data 
analytics and technology to enhance health care delivery, inform policy and improve physician and economic behavior.  
from a decrease in PAC spending, mostly from a decreased use of 
institutional care. Implant costs decreased by 29% from $6,636 to $4,716 
over the study period.
PAC spending decreased only when it was included in the bundle (the 
BPCI model). From 2013 to 2015, average inpatient rehabilitation facility 
spending per episode declined 54% from $2,601 to $1,185, accounting for 
45% of total hospital savings. Average skilled nursing facility spending 
per episode fell 24% from $2,476 to $1,875 and accounted for 19% of total 
hospital savings. 
Quality of Care
From baseline to the end of 2015, the proportion of cases with prolonged 
length of stay (PLOS) decreased from 22% to 7%, while rates of 
readmissions and emergency room visits did not change. The severity of 
patient illness remained stable.
THE IMPLICATIONS
During a period in which Medicare payments for joint replacement 
episodes increased by 5% nationally, an early adopter of bundled 
payments saw a 21% decrease in total Medicare payments per 
uncomplicated joint replacement episode. This study identifies implant 
costs and institutional PAC spending as areas of potential major savings. 
These results can inform health systems in care redesign as Medicare 
moves to reimburse more services through bundled payments.
The authors draw several lessons from BHS’s success in implementing 
bundled payments:
•   Hospitals can save money by reducing implant costs and institutional 
PAC utilization, changes that can be made without intensive care 
coordination investments. BHS reduced implant costs by almost 30% 
(compared to a 15.5% reduction nationally) through its successful 
gainsharing mechanism. Including surgeons in the decision making 
process enabled BHS to standardize implant use. 
•   Hospitals can generate savings without compromising on quality, 
or only selectively choosing the lowest-risk patients. During the 
study period, there were no significant changes in patient risk scores, 
hospital readmission or emergency room rates. 
•   Organizational and market characteristics can improve a hospital’s 
performance in a bundled payment initiative. The authors suggest 
that BHS’s success in BPCI can be partially attributed to building 
blocks established during ACE: data infrastructure and an orthopedic 
working group tracking variations in care. Additionally, BHS utilized 
home care services available in its local market to reduce the use of 
institutional PAC, allowing it to reduce PAC costs. 
•   How bundles are designed matters. In contrast to BPCI, the 
new CJR program involves a 90-day bundle, incorporates risk-
adjusted hospital complications such as acute myocardial infarction 
and pneumonia into quality measurement, and utilizes regional 
benchmarks in computing hospitals’ baselines. 
While the BHS experience may not generalize to all providers, these 
results can provide guidance to other organizations by delineating how a 
high-performing system achieved its savings.
Navathe AS, Troxel AB, Liao JM, Nan N, Zhu J, Zhong W, 
Emanuel EJ. Cost of Joint Replacement Using Bundled 
Payment Models. JAMA Intern Med. Published online 
January 03, 2017. doi:10.1001/jamainternmed.2016.8263
ABOUT LDI  
 
Since 1967, the Leonard Davis Institute of Health Economics (LDI) 
has been the leading university institute dedicated to data-driven, 
policy-focused research that improves our nation’s health and health 
care. Originally founded to bridge the gap between scholars in 
business (Wharton) and medicine at the University of Pennsylvania, 
LDI now connects all of Penn’s schools and the Children’s Hospital of 
Philadelphia through its more than 200 Senior Fellows. 
 
LDI Research Briefs are produced by LDI’s policy team. For more 
information please contact Janet Weiner at weinerja@mail.med.upenn.edu.
Episode Spending in ACE and BCPI Models. Blue line is fitted episode spending; red line is 
CMS target price under BCPI. Source: JAMA Internal Medicine


Cost of Joint Replacement Using Bundled Payment Models

ScholarlyCommons@Penn

University of PennsylvaniaScholarlyCommonsResearch Briefs Leonard Davis Institute of Health Economics1-6-2017Cost of Joint Replacement Using Bundled PaymentModelsAmol NavatheUniversity of PennsylvaniaAndrea B. TroxelJoshua M. LiaoNan NanJingsan ZhuUniversity of Pennsylvania, jingsan@mail.med.upenn.eduSee next page for additional authorsFollow this and additional works at: http://repository.upenn.edu/ldi_researchbriefsPart of the Health Economics Commons, and the Medicine and Health Sciences CommonsLDI briefs are produced by LDI's policy team. For more information please contact Janet Weiner at weinerja@mail.med.upenn.edu.This paper is posted at ScholarlyCommons. http://repository.upenn.edu/ldi_researchbriefs/22For more information, please contact repository@pobox.upenn.edu.Navathe, Amol; Troxel, Andrea B.; Liao, Joshua M.; Nan, Nan; Zhu, Jingsan; Zhong, Wenjun; and Emanuel, Ezekiel J.. Cost of JointReplacement Using Bundled Payment Models. LDI Research Briefs. 2017; No. 22.https://ldi.upenn.edu/brief/cost-joint-replacement-using-bundled-payment-modelsCost of Joint Replacement Using Bundled Payment ModelsKeywordscost, joint replacement, bundled paymentsDisciplinesHealth Economics | Medicine and Health SciencesCommentsLDI briefs are produced by LDI's policy team. For more information please contact Janet Weiner atweinerja@mail.med.upenn.edu.LicenseThis work is licensed under a Creative Commons Attribution-No Derivative Works 4.0 License.Author(s)Amol Navathe, Andrea B. Troxel, Joshua M. Liao, Nan Nan, Jingsan Zhu, Wenjun Zhong, and Ezekiel J.EmanuelThis brief is available at ScholarlyCommons: http://repository.upenn.edu/ldi_researchbriefs/22COST OF JOINT REPLACEMENT USING  BUNDLED PAYMENT MODELSAmol S. Navathe, Andrea B. Troxel, Joshua M. Liao, Nan Nan, Jingsan Zhu, Wenjun Zhong, and Ezekiel J. EmanuelJAMA Internal Medicine, January 2017KEYFINDINGS Medicare bundled payments for joint replacement produced significant savings for a hospital system and reduced Medicare payments. The savings were driven by reductions in implant cost and in post-acute care spending. DATA  D R I V E N . P O L I C Y  F O C U S E DBRIEFResearchLDIResearch to Improve the Nation’s Health System   2017 . No. 1THE QUESTIONBundled payments apply a fixed price to episodes of care, thereby incentivizing care coordination and efficiency. In 2009, the Centers for Medicare and Medicaid Services (CMS) piloted an orthopedic bundle, the Acute Care Episode (ACE) demonstration, for in-hospital costs only. In 2013, CMS expanded the voluntary model with Bundled Payment for Care Improvement (BPCI), which included both acute hospital and post-acute care (PAC) for 30 days. These projects led to the Comprehensive Care for Joint Replacement (CJR) program in 2016 - a mandatory bundled payment program for all 800+ hospitals in 67 urban geographic areas. CJR bundled payments include hospital, physician, and PAC services for 90 days. The Trump administration and new CMS leadership will need to decide whether to continue to ramp up mandatory bundles, and have expressed misgivings about this approach. Evidence on the effects of bundled payment is more important than ever, while hospitals already in CJR need guidance in redesigning care. This observational study looks at whether bundled payment for joint replacement through the ACE and BPCI affected quality, hospital costs and post-acute care spending. Did the bundles save money, and if so, what produced those savings? THE STUDYThe authors studied 3,942 patients who had major joint replacement of lower extremities, between 2008 and 2015 at Baptist Health System (BHS) in Texas. BHS is a clinically integrated network of five hospitals that participated in ACE and BPCI. They matched Medicare claims data and BHS internal cost data for Medicare patients discharged from BHS hospitals for episodes of major joint replacement. They used Medicare claims to construct care episodes that included acute hospital facility payments, physician fees during hospitalization, and PAC payments up to 30 days after hospital discharge. They analyzed changes in episode payments, internal hospital costs, and PAC spending across four study periods: the ACE baseline, when the hospital was paid fee-for service; the ACE period; a transition period between ACE and BPCI, when data were unavailable; and the BPCI period. They analyzed changes in quality using the 30-day readmission rate, emergency room visit rate, and proportion of episodes with a prolonged length of stay (PLOS).THE FINDINGSEpisode PaymentsBetween 2008 (the baseline) and 2015, average Medicare payments to BHS for joint replacement without complications decreased nearly 21% from $26,785 to $21,208, with significant reductions only during BPCI.  See graphic.Average episode spending on cases with pre-existing complications decreased 13.8% between 2008 and 2015, although the decrease was not statistically significant. Hospital Savings Hospitals earned savings (that is, additional margins) by internal cost reductions, and for the BPCI period only, by decreasing PAC spending. By the end of 2015, 51% of savings came from internal reductions, mostly from decreasing the cost of implants and supplies, and 49% of savings COLONIAL PENN CENTER   |   3641 LOCUST WALK   |   PHILADELPHIA, PA 19104-6218   |   LDI.UPENN.EDU   |   P: 215-898-5611   |   F: 215-898-0229   |    @PENNLDIBRIEFResearchLDILEAD AUTHORDR. AMOL NAVATHE Amol Navathe, MD, PhD, is an Assistant Professor of Health Policy and Medicine at Penn. He is a practicing physician, health economist and engineer with an expertise in delivery transformation and policy design. His work focuses on the use of data analytics and technology to enhance health care delivery, inform policy and improve physician and economic behavior.  from a decrease in PAC spending, mostly from a decreased use of institutional care. Implant costs decreased by 29% from $6,636 to $4,716 over the study period.PAC spending decreased only when it was included in the bundle (the BPCI model). From 2013 to 2015, average inpatient rehabilitation facility spending per episode declined 54% from $2,601 to $1,185, accounting for 45% of total hospital savings. Average skilled nursing facility spending per episode fell 24% from $2,476 to $1,875 and accounted for 19% of total hospital savings. Quality of CareFrom baseline to the end of 2015, the proportion of cases with prolonged length of stay (PLOS) decreased from 22% to 7%, while rates of readmissions and emergency room visits did not change. The severity of patient illness remained stable.THE IMPLICATIONSDuring a period in which Medicare payments for joint replacement episodes increased by 5% nationally, an early adopter of bundled payments saw a 21% decrease in total Medicare payments per uncomplicated joint replacement episode. This study identifies implant costs and institutional PAC spending as areas of potential major savings. These results can inform health systems in care redesign as Medicare moves to reimburse more services through bundled payments.The authors draw several lessons from BHS’s success in implementing bundled payments:•   Hospitals can save money by reducing implant costs and institutional PAC utilization, changes that can be made without intensive care coordination investments. BHS reduced implant costs by almost 30% (compared to a 15.5% reduction nationally) through its successful gainsharing mechanism. Including surgeons in the decision making process enabled BHS to standardize implant use. •   Hospitals can generate savings without compromising on quality, or only selectively choosing the lowest-risk patients. During the study period, there were no significant changes in patient risk scores, hospital readmission or emergency room rates. •   Organizational and market characteristics can improve a hospital’s performance in a bundled payment initiative. The authors suggest that BHS’s success in BPCI can be partially attributed to building blocks established during ACE: data infrastructure and an orthopedic working group tracking variations in care. Additionally, BHS utilized home care services available in its local market to reduce the use of institutional PAC, allowing it to reduce PAC costs. •   How bundles are designed matters. In contrast to BPCI, the new CJR program involves a 90-day bundle, incorporates risk-adjusted hospital complications such as acute myocardial infarction and pneumonia into quality measurement, and utilizes regional benchmarks in computing hospitals’ baselines. While the BHS experience may not generalize to all providers, these results can provide guidance to other organizations by delineating how a high-performing system achieved its savings.Navathe AS, Troxel AB, Liao JM, Nan N, Zhu J, Zhong W, Emanuel EJ. Cost of Joint Replacement Using Bundled Payment Models. JAMA Intern Med. Published online January 03, 2017. doi:10.1001/jamainternmed.2016.8263ABOUT LDI   Since 1967, the Leonard Davis Institute of Health Economics (LDI) has been the leading university institute dedicated to data-driven, policy-focused research that improves our nation’s health and health care. Originally founded to bridge the gap between scholars in business (Wharton) and medicine at the University of Pennsylvania, LDI now connects all of Penn’s schools and the Children’s Hospital of Philadelphia through its more than 200 Senior Fellows.  LDI Research Briefs are produced by LDI’s policy team. For more information please contact Janet Weiner at weinerja@mail.med.upenn.edu.Episode Spending in ACE and BCPI Models. Blue line is fitted episode spending; red line is CMS target price under BCPI. Source: JAMA Internal Medicine

https://repository.upenn.edu/cgi/viewcontent.cgi?article=1021&amp;context=ldi_researchbriefs

Cost of Joint Replacement Using Bundled Payment Models

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